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'^  REPORT 

TO 

GOVERNOR  EDWARD  F.  DUNNE 

ON 

INVESTIGATION  OF  FIRE  INSURANCE 
CONDITIONS  AND  RATES  IN  ILLINOIS. 


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By  RUFUS  M.  POTTS 

loiurancc  Superintendent         i 


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State  OF  Illinois  ^Bf^'' 

Insurance  Department  :'.:•.*•..• 

SpriinificlJ 
To  His  Excellency, 

Edward  F.  Dunne,  Governor,  State  of  Illinois. 
Sir:     In  my  annual  Fire  Report,  dated  April  18,  1914,  I 
slated  (p.  VI)  : 

"From  the  fact  that  I  am  now  in  the  midst  of  an 
investijration  into  fire  insurance  conditions  prevailing 
in  this  State,  I  am  unable  at  this  time  to  add  my  recom- 
mendations to  this  fire  report,  but,  as  soon  as  this  in- 
vestigation is  completed,  I  will  file  with  you  a  separate 
report,  with  proper  recommendations." 

I  have  continued  this  investigation  and  find  that  the  fire 
insurance  business  is  illegally  and  oppressively  conducted  in 
Illinois  and  its  methods  demand  radical  legislative  reform. 

The  most  objectionable  feature  disclosed  is  the  usurpation 
by  the  stock  fire  insurance  companies  of  powers,  rights,  and 
privileges  not  incident  to  their  business  and  detrimental  to 
the  best  interests  of  the  people  of  this  State.  Such  usurpation 
is  accomplished  by  means  of  a  nation-wide  system  of  inter- 
locking organizations,  comprising  all  company  officials  from 
the  president  to  the  local  agent,  with  controlling  boards  domi- 
nated by  Eastern  influence. 

This  immense  system  has  established  certain  local  "com- 
bines" in  Illinois,  for  the  purpose  of  fixing  and  maintaining 
exorbitant  premium  rates.  Also  about  fifty  of  these  "combine" 
companies  operate  "Annexes,"  some  as  many  as  eight,  through 
which  they  issue  so-called  "underwriters"  policies.  These 
"Annexes"  are  illegal  and  fictitious  entities,  and  are  an 
effective  aid  in  creating  and  continuing  the  fi-e  insurance 
monopoly  now  existing  in  Illinois.  Through  the  ,  '^ration  of 
these  "Annexes,"  the  great  Eastern  companies  hav^.  absorbed 
practically  all  of  the  Illinois  stock  fire  insurance  companies. 
Under  no  circumstances  should  they  be  permitted. 

An  unfair,  arbitrary  and  indefensible  business  policy  is 
followed  by  the  stock  fire  insurance  companies  in  dealing  with 
both  the  State  and  the  public. 

After  a  careful  investigation  of  fire  insurance  conditions 
and  wide  research  into  the  legal,  technical  and  economic  phases 
of  this  question,  I  have  formed  certain  conclusions,  and  make 
herein  constructive  recommendations  which  will  remedy  the 
existing  evils.     I.  therefore,  bog  leave  to  first  call  your  atten- 


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tion  to  some  underlying  general  principles  upon  which  the 
fire  insur^cuce  biisiness:  feL<ts;  and  then  make  a  full  presenta- 
tion of  the  fire  msurcmee*  business  as  it  is  carried  on  in  Illinois. 

MAONIl'UDS'  AND  3S:E0ESSITY   OF   FIRE   INSURANCE. 

Very  few  citizens  of  Illinois  have  any  realization  of  the 
financial  importance  of  the  fire  insurance  business,  nor  of  the 
amount  of  waste  which  annually  occurs  by  fire.  According  to 
the  official  reports  made  to  this  Department,  the  total  amount 
of  premiums  received  by  stock  fire  companies  in  Illinois  for 
1913  was  $26,037,910.  According  to  the  Spectator's  "Insurance 
Year  Book"  for  1914,  a  standard  insurance  publication,  the 
total  income  of  all  fire  insurance  companies  doing  business  in 
the  United  States  for  the  year  1913  amounted  to  $416,975;367. 

To  better  realize  the  immensity  of  these  sums  and  what 
this  fire  loss  means,  compare  it  with  the  governmental  expense 
of  the  State  of  Illinois  and  of  the  United  States.  The  total 
expense  of  the  Illinois  State  Government  for  the  period  of 
two  years,  October  1,  1910,  to  September  30,  1912,  was  $25,- 
882,578,  or  $12,941,293  annually,  so  that  the  fire  tax  in  Illinois 
was  over  twice  as  heavy  as  the  State  tax.  The  total  expense 
of  the  United  States  Government  for  the  year  1912  was  $654,- 
553,963.  Consequently  we  see  that  the  people  paid  the  fire 
insurance  companies  two-thirds  as  much  as  it  cost  to  maintain 
the  government  of  the  United  States.  But  in  reality  the  total 
fire  loss,  direct  and  indirect,  to  the  people  of  this  country,  ex- 
ceeded the  expenses  of  the  United  States  Government.  For, 
the  total  fire  loss  to  the  nation  included  this  total  income  of  the 
companies  of  $416,975,367,  because  if  no  fires  occurred  this  sum 
would  not  have  been  spent,  and  there  was  also  a  great  loss 
of  uninsured  property  and  property  on  which  the  insurance 
collected  did  not  equal  the  total  loss.  Furthermore,  in  Illinois, 
in  1913,  387  lives  were  lost.  The  figures  for  the  United  States 
are  not  available  for  1913,  but,  in  1907,  1,449  persons  lost  their 
lives  and  5,654  were  injured  in  fires.  The  mere  monetary  value 
of  the  lives  lost  and  injuries  sustained  cannot  be  estimated. 
But  this  is  not  all.  The  expense  of  equipping  and  maintaining 
fire  departments  in  cities  and  providing  fire  protection  in  in- 
dividual buildings  must  also  be  added.  The  grand  total  I  will 
not  try  to  estimate,  but  it  is  a  staggering  amount.  The  report 
of  the  New  York  Insurance  Commission  (1910),  says:        / 

' '  The  fire  loss  of  this  country  averages  nearly  two 
hundred  fifty  millions  a  year,  and  is  increasing;  this 
is  about  $30,000  an  hour,  or  $500  a  minute,  year  in  and 


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year  out.  To  this  must  be  added  at  least  the  same  addi- 
ditional  aiuoiint  for  the  maintenance  of  fire  depart- 
ments, and  nearly  as  miieh  more  for  the  experience  of 
conduetinfr  tlie  insurance  business;  altogetlier  in  the 
neighborhood  of  $T;")0,U0O,000  a  year  of  expenditures, 
because  of  destructive  fires ;  that  is,  fires  cost  us  di- 
rectly and  indirectly,  each  year,  more  than  the  value 
of  the  cotton  crop,  and  not  only  that,  but  along  with 
this  economic  loss  goes  a  frightful  and  horrible  loss 
of  life." 

Surely  a  matter  of  this  importance  is  worthy  our  careful 
attention  and  study.  Wiien  we  give  it  this,  some  astonishing 
results  are  disclosed,  such  as  the  fact  that  the  expense  of  col- 
lecting and  disbursing  the  fire  tax  is  about  one-half;  that  the 
fire  insurance  business,  as  at  present  conducted,  increases 
instead  of  diminishes  the  annual  fire  loss;  and  that,  in  reality, 
the  fire  companies  do  not  dread  fires,  but  are  content  to  have 
them  occur. 

FIRE  INSURANCE  COMPULSORY. 

Under  moih-rn  eommoreial  conditions,  tire  insurance  is 
practically  compulsory.  This  comes  from  the  fact  that  most 
mercantile,  manufacturing  and  other  business  is  done  on  credit. 
Credit  will  not  be  extended  to  a  merchant,  manufacturer,  or 
business  man,  unless  his  stock  of  goods,  merchandise  in  transit, 
or  articles  in  the  process  of  manufacture  are  fully  covered  by 
insurance.  Neither  can  loans  be  secured  on  real  estate  unless 
all  buildings  are  fully  insured.  The  insurance  business  is  of 
direct  personal  interest  to  every  citizen  of  the  State  of  Illinois. 
The  fire  insurance  tax  falls,  not  only  on  property  owners,  but 
also  on  everyone  who  sleeps  in  a  house  or  purchases  goods  in 
a  store,  for  owners  add  the  fire  tax  to  the  rental  of  their  build- 
ings and  include  it  in  the  price  of  goods  sold.  These  facts  and 
conditions  are  not  generally  understood. 

HISTORY  OF  FIRE  INSURANCE. 

After  a  siioct  investigation  into  the  iiistory  of  fire  insur- 
ance in  the  civilized  world.  I  made  an  interesting  discovery. 
Search  in  the  historical  portions  of  the  numerous  treatises 
on  insurance,  and  copious  periodical  insurance  literature  pub- 
lished in  the  English  language,  failed  to  give  any  indication 
either  of  the  history  or  the  existence  at  the  present  time  of 
State  fire  insurance  in  Europe.  I  find,  however,  that  public 
fire  insurance,  either  by  the  State,  province,  canton,  city  or 
commune,   was   the   original   and   long  the   only  form   of  fire 


insurance  in  most  European  countries,  and  that  this  State 
insurance  still  flourishes  vigorously  in  those  countries,  although 
mutual  and  stock  company  insurance  are  now  found  in  all. 
This  omission  to  mention  State  insurance,  either  historically 
or  otherwise,  cannot  be  merely  accidental.  It  is  the  most 
striking  and  essential  fact  connected  with  fire  insurance  in 
Europe,  other  phases  of  wiiich  subject  have  received  frequent 
mention  in  books  and  periodicals  in  the  English  language.  In 
order  to  obtain  any  account  of  State  fire  insurance,  I  was 
obliged  to  go  to  books  written  in  foreign  languages.  When  I 
did  this,  I  found  a  verj^  complete  treatment  of  the  subject  in 
the  following  books: 

Assurance  Contre    L'  Incendie,    Service    Public,    En 

Allemagne,  Alglave,   (1901). 
Les  Assurances  Contre  L'  Incendie  Par  L'  Etat  Ou  Les 
Cantons,  En  Suisse  &  dans  les  Pays  Scandinaves, 
Alglave,  (1902). 
L 'Assurance  Contre  L'  Incendie  par  la  Province  Ou 
La  Ville,  en  Autriche-Honerie  &  Russie,  Alglave. 
(1904). 
Das   Deutsche   Feuerversicherungswesen,    Biederman, 

et  al,  (1913). 
The  only  explanation  that  occurs  to  me  of  this  extraordi- 
nary omission,  which  amounts  to  a  veritable  "conspiracy  of 
silence",  is  that  it  might  be  embarrassing  for  the  insurance 
companies  and  their  advocates  to  have  the  facts  known  in 
relation  to  State  fire  insurance  in  Europe.  It  is  already  a 
matter  of  common  knowledge  among  persons  familiar  with  fire 
insurance  matters,  that  the  rates  in  European  countries  are 
exceedingly  low  compared  with  those  in  the  United  States, 
and  it  is  probable  they  realized  that  it  might  be  suspected  that 
there  was  some  connection  between  State  insurance  and  these 
low  rates  of  fire  insurance.  A  brief  study  of  the  subject 
renders  this  surmise  very  probable,  and  I  am  sure  that  State 
insurance  is  the  chief  cause  of  the  tremendous  difference  in 
rates,  OAving  to  several  factors  which  I  will  detail  later,  after  a 
few  words  about  the  history  of  fire  insurance  in  general. 

ANCIENT  TIMES. 

There  is  no  trace  of  fire  insurance  in  any  of  the  ancient 
civilizations,  either  in  Asia  or  Europe.  It  appears  to  be  un- 
known even  to  the  Romans,  although  among  the  latter  there 
was  an  analogous  form  of  maritime  contract  which,  how^ever, 
only  amounted  to  a  simple  bet  on  the  safe  arrival  of  a  ship. 

Among  the  reasons  given  for  the  absence  of  insurance  in 


ancient  times  are  these:  That  there  wore  no  reliable  statistics 
by  which  charges  for  insurance  could  be  computed,  and  that 
persons  then  engaged  in  commerce  were  usually  very  wealthy 
or  very  poor.  For  the  first  class  a  disaster  would  not  destroy 
their  entire  resources,  so  that  assurance  was  not  indispensable 
to  tiiem.  For  the  second  class,  the  payment  of  a  premium  was 
practically  impossible. 

For  the  germs  of  fire  insurance  we  go  back  only  to  the 
Middle  Ages,  where  we  find,  in  the  ninth  century  in  England, 
and  later  in  other  countries,  organizations  or  associations  of 
merchants  and  artisans.  These  had  different  names  in  different 
countries,  but  are  usually  grouped  under  the  term  of  "Guilds." 
At  first  they  were  social  and  charitable  in  character,  as  well 
as  for  the  promotion  of  the  material  interests  of  their  mem- 
bers. Among  the  latter  functions  was  the  relieving  of  distress 
of  members,  caused  by  accident  and  other  casualties,  among 
which  were  losses  by  fire.  Usually  all  the  members  paid  an 
entrance  fee,  as  well  as  periodical  dues,  which  were  preserved 
as  a  fund  for  these  purposes.  After  the  eleventh  century  the 
Guilds  became  more  industrial  and  professional  in  character, 
and  were  succeeded  in  various  Teutonic  countries  by  Brand- 
gilden,  a  sort  of  mutual  fire  insurance  association,  and  these 
also  existed  in  England  long  before  the  great  London  fire,  but 
seem  to  have  died  out  there. 

GERMANY. 

The  Brandgilden  were  succeeded  in  Germany  by  public 
institutions,  generally  termed  Feuersocietaten.  The  first  in- 
stitution of  this  kind  was  that  of  Hamburg,  founded  in  1677, 
followed  by  one  in  1706,  for  Berlin.  This  was  later  divided, 
one  part  being  for  insuring  city  property,  and  the  other  for 
country  property.  During  the  eighteenth  century,  numerous 
similar  pul)lic  fire  institutions  were  organized  in  all  tiie  prov- 
inces now  comprised  in  the  German  Empire,  and  most  are  in 
existence  today,  although  some  have  been  subject  to  modifica- 
tion, usually  by  being  united  with  other  similar  institutions. 

There  were  in  1913,  in  operation,  forty-nine  public  fire 
insurance  institutions  in  the  various  parts  of  the  present 
German  Empire.  A  fiUl  and  authoritative  account  of  the 
organization  and  operation  of  these  institutions  is  to  be  found 
in  "Das  Deutsche  Feuerversiohorungswesen."  mentioned  above. 
Some  of  these  are  restricted  in  their  field  of  action  to  one  city; 
some  to  a  single  province,  and,  excepting  Prussia,  there  are 
institutions  which  extend  over  whole  kingdoms.     For  a  long 


time  fire  insurance  was  a  monopoly  of  the  State  institutions,  at 
least  as  regards  real  property,  but  since  1861  this  monopoly 
has  been  largely  withdrawn  and  the  State  institutions  have  to 
compete  with  private  companies.  In  Germany,  also,  there  has 
been  an  extensive  development  of  mutual  insurance,  so  that 
these  three  types  are  all  in  operation  in  Germany. 

AUSTRIA-HUNGARY. 

Fire  insurance  history  in  Austria-Hungary  is  similar  to 
that  of  Germany.  We  find  State  institutions,  mutuals  and 
stock  companies.  In  Austria,  also,  fire  insurance  originated 
in  small  local  associations,  of  which  several  have  been  in  exist- 
ence since  1710.  Numerous  other  mutuals  have  since  been 
organized  and  still  operate.  There  are  now  four  State  insti- 
tutions in  Austria,  and  eight  stock  companies. 

SWITZERLAND. 

In  Switzerland,  fire  insurance  is  of  more  recent  origin.  It 
began  as  a  form  of  private  insurance,  but  this  was  abandoned 
for  public  insurance  by  the  Canton.  This  change  of  policy 
commenced  in  1805  with  the  Canton  of  Argovie.  In  1841  there 
were  seventeen  Cantonal  institutions  for  insuring  buildings, 
of  which  the  larger  part  were  compulsory.  Many  of  the 
Cantons  took  up  fire  insurance  in  order  to  fight  the  combi- 
nation of  private  societies,  and,  above  all,  of  the  foreign  socie- 
ties which  exacted  excessive  rates.  Later  there  were  Cantonal 
institutions  for  insuring  movable  property.  In  1897  there 
were  eighteen  Cantonal  institutions  foy  insuring  buildings,  and 
two  for  insuring  movable  property.  There  were,  also,  at  that 
time,  in  Switzerland,  five  mutual  societies  and  eighteen  stock 
companies. 

DENMARK. 

In  Denmark,  at  the  end  of  the  seventeenth  century,  there 
existed  a  law  which  obliged  the  commune  to  reconstruct,  free 
of  charge,  buildings  destroyed  by  fire.  In  1714  there  was 
founded  in  Seeland  a  free  mutual  society  for  insuring  church 
structures  and  schools.  This  example  was  rapidl}^  followed 
and  mutuals  were  formed  for  the  purpose  of  insuring  middle- 
class  houses  and  farms.  The  obligations  of  these  mutuals, 
however,  became  burdensome,  and  in  1735  the  government 
intervened  and  created  an  institution  for  compulsory  insur- 
ance in  the  cities  of  the  province,  and.  in  1761.  an  institution 
was  founded  which  extended  its  action  throughout  the  whole 
territory,  except  Copenhagen.     For  Copenhagen  a  communal 


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institution  had  been  established  in  1731,  but  with  insurance 
optional;  a  great  tire  in  1795,  however,  eaused  insurance  to 
be  made  obligatory,  and  a  fixed  sum  was  collected  for  fire 
prevention  purposes.  Prior  to  this  time,  fire  insurance  had 
been  carried  on  by  local  associations  known  as  Braudgilden, 
but  a  State  institution  for  this  purpose  was  organized  in  1792. 
Since  that  time,  in  addition  to  the  continued  existence  of  local 
associations,  we  find  mutuals  for  the  insuring  of  movable 
property.  In  addition  to  the  above  public  and  mutual  insti- 
tutions, .stock  companies,  also,  at  present  conducted  fire  in- 
surance in  Denmark.  In  Iceland,  in  the  thirteenth  century, 
we  lind  an  institution  under  the  name  of  "Repps"  for  insuring 
against  loss  of  cattle,  and  by  fire. 

SWEDEN. 
In  Sweden,  at  the  end  of  the  seventeenth  century,  several 
small  associations  were  in  existence,  which  collected  dues  for 
the  j)urpose  of  relieving  against  disasters  by  fire,  storm  and 
flood.  These  were  s-ucceeded  by  the  formation  of  a  multitude 
of  small  free  societies,  some  extending  only  throughout  one 
commune,  and  the  others  further.  Those  owners  affiliated  with 
one  of  these  associations  were  exonerated  from  paying  the 
regular  public  fire  tax  collected  in  each  "Harad."  The  fire 
tax  for  insurance  in  "Ilarads"  have  ceased,  being  replaced  by 
a  public  institution  in  Stockholm  for  insurance  of  real  property, 
which  exists  today.  Since  1829,  there  has  been  a  special  insti- 
tution for  insuring  country  buildings.  Stock  fire  insurance 
also  exists  in  Sweden,  there  being  5  companies  in  1897. 

NORWAY. 

The  development  of  in.surance  in  Norway  has  been  very 
similar  to  that  in  Sweden.  In  1767  a  State  insurance  institu- 
tion, managed  by  the  government,  was  created,  which  insured 
throughout  the  Kingdom.  Insurance  was  at  first  obligatory  for 
all  real  property.  Christiania,  which  had  possessed  since  1752 
a  municipal  fire  insurance  institution,  was  soon  relieved  of  obli- 
gation to  insure  in  the  State  institution.  This  lasted  till  1827, 
since  which  time  Christiania  has  also  been  insured  in  the  State 
institution.  Later  the  instituton  was  divided  into  two  parts, 
one  for  town  risks  and  the  other  for  rural  risks.  Since  1883 
several  stock  companies  have  been  formed  for  insuring  movable 
property,  for  maritime  insurance,  also  forestry  insurance. 


RUSSIA. 

In  Russia  the  beginning  of  insurance  is  stated  to  have 
been  in  1786,  when  an  Imperial  bank  for  making  insurance  was 
organized.  Various  other  insurance  plans  have  since  been  in 
operation.  In  June,  1864,  an  imperial  manifesto  established 
provincial  institutions  for  fire  insurance  which  were  compul- 
sory upon  dwelling  houses  not  already  insured  in  private  com- 
panies, but  insurance  was  optional  for  other  real  property. 
These  institutions  were  under  the  supervision  of  the  govern- 
mental head  of  each  province.  These  institutions  now  exist  in 
most  of  the  provinces.  There  are  in  operation  also  many  mu- 
tual associations  and  several  joint  stock  companies. 

NEW  ZEALAND. 

The  latest  instance  of  the  inauguration  of  a  system  of 
State  fire  insurance  is  in  New  Zealand,  where  a  government 
institution  for  fire  insurance  was  opened  for  business  January  4, 
1905.  Although  it  began  and  has  continued  in  operation  against 
strong  competition  from  mutuals  and  stock  insurance  com- 
panies, both  domestic  and  foreign,  it  has  been  very  successful, 
and,  although  this  is  a  very  small  country,  at  the  end  of  1912 
carried  insurance  to  the  amount  of  £13,519,742  sterling.  Its 
annual  premium  income  has  been  as  follows : 

"1905,  £13,132;  1906,  £20,962;  1907,  £23,195; 
1908,  £26,657;  1909,  £33,281;  1910,  £40,552;  1911, 
£47,745;  1912,  £54,380." 

(New  Zealand  Year  Book,  1913,  p.  706.) 

Out  of  these  it  has  accumulated  a  reserve  fund  of  £37,000 
in  government  securities  and  other  funds  amounting  to  £48,000. 

The  interesting  point  is  that,  by  reason  of  its  establishment, 
the  premium  rates  on  mercantile  risks  have  been  reduced  10%, 
and  on  dwellings,  offices,  etc.,  33  1-3%,  and  this  reduction  oc- 
curred not  only  in  the  premium  rates  of  the  State  institution, 
but  in  the  stock  company  rates,  in  order  to  meet  State  compe- 
tition, so  that  there  has  been  an  immense  saving  to  the  people 
of  New  Zealand.    It  is  said : 

"The  fire  insurance  department  has  saved  to  the 
people  in  the  first  year  of  its  operation  more  than  half 
a  million  dollars  in  premiums." — (Government  Insur- 
ance in  New  Zealand,  Independent,  Vol.  61,  p.  86.) 

The  saving  to  the  people  has  increased  correspondingly 
in  succeeding  years  and  now  doubtless  aggregates  millions  of 
dollars.     All  this  has  been  accomplished  without  a  dollar  of 


fxpeuse  to  the  taxpayer,  all  expenses  haviug  been  paid  out  of 
the  insurance  business. 

STATE  INSURANCE  OLD  AND  WELL  TRIED. 
This  brief  outline  of  the  history  and  present  condition  of 
insurance  in  these  important  European  countries  shows  that 
State  tire  insurance,  instead  of  being  a  new  and  untried  experi- 
ment, is  the  oldest  form  of  insurance,  and  still  benefits  the  peo- 
ple of  these  countries,  or  it  would  have  been  long  ago  discarded. 
This  beneht  comes  not  only  from  the  low  rates  at  which  State 
insurance  is  effected,  but  also  from  the  fact  that  it  compels  the 
stock  companies  to  do  their  business  at  similar  low  rates  in 
order  to  get  business,  instead  of  leaving  them  free  to  exact  such 
rates  as  they  please,  as  in  the  United  States.  Another  benefit 
is  that  the  fact  that  the  State  is  engaged  in  the  fire  insurance 
business  has  caused  the  enactment  of  strict  laws  for  the  pre- 
vention of  fires,  the  prohibition  of  overinsurance,  and  the  pun- 
ishment of  criminal  incendiaries,  as  well  as  those  who  cause 
fires  by  gross  carelessness.  It  is  to  these  factors  mainly  that 
the  very  much  smaller  fire  waste  in  European  countries  is  to 
be  attributed,  rather  than  the  excuse  alleged  by  the  insurance 
companies, — the  smaller  use  of  wood  in  buildings.  The  increased 
risk  from  larger  use  of  wood  in  construction  is  probably  offset 
by  the  superior  fire  fighting  facilities  in  American  cities.  The 
most  important  cause  of  the  immensely  lower  fire  insurance 
rates  in  Europe  is  the  existence  there  of  State  fire  insurance 
institutions. 

ENGLAND. 

In  England  the  early  l(»<al  fire  insurance  associations  seem 
to  have  disappeared  without  causing  the  inauguration  of  any 
form  of  State  fire  insurance,  such  as  occurred  in  most  Euro- 
pean countries.  In  1609,  a  project  was  brought  out  for  insur- 
ing houses  against  fires  in  return  for  a  fixed  premium.  It  was 
vigorously  discussed,  but  religious  scruples  prevented  its  adop- 
tion. Fire,  .said  the  opponents,  is  the  work  of  God,  like  other 
scourges  which  afflict  humanity;  therefore,  you  cannot,  without 
sin,  put  obstacles  in  the  way  of  the  Divine  "Will  by  suppres.sing, 
through  the  payment  of  an  indemnity,  the  chastisement  w^hich 
is  intended  to  be  inflicted  on  certain  persons.  The  project 
failed,  whether  for  these  reasons  or  others  is  not  recorded. 

In  1666  occurred  the  great  fire  of  London  which  was 
relatively  the  most  destructive  in  the  world,  over  three-fourths 
of  the  buildings  in  the  city  being  de.stroj'cd.     This  caused  the 


10 

subject  of  fire  insurance  to  be  again  taken  up,  and,  in  the  ab- 
sence of  any  form  of  local  or  mutual  insurance,  the  form  of 
insurance  by  stock  companies  was  adopted,  the  first  being  or- 
ganized in  1680.  In  1681  an  attempt  was  made  to  have  fire 
insurance  carried  on  by  the  municipality  of  London,  but  owing 
to  different  causes,  among  which  was  the  vigorous  hostility 
of  the  previous  private  company,  the  city  abandoned  the  enter- 
prise, and,  thereafer,  fire  insurance  in  England,  followed  by  the 
United  States,  has  since  been  carried  on  solely  by  joint  stock 
companies,  and  later  by  mutuals,  without  anj^  state  institutions 
whatever  being  created  for  this  purpose.  The  course  of  insur- 
ance development  in  France  was  similar  to  that  in  England, 
and  it  is  with  the  historj^  of  fire  insurance  in  these  countries 
alone  that  the  historical  sketches  printed  in  English  have 
solely  busied  themselves,  as  I  have  above  noted. 

UNITED  STATES. 

In  the  absence  of  State  competition  or  regulation,  the  fire 
insurance  business  proved  very  profitable  for  corporations  and 
a  number  were  later  organized  for  this  purpose  in  England, 
and  the  United  States.  Here  the  first  company  was  the  Phila- 
delphia Contributionship,  organized  in  1752,  followed  by  a  sec- 
ond in  the  same  city,  the  Mutual  Assurance,  in  1786.  The 
third  was  the  Knickerbocker  Fire  of  New  York.  By  the  close 
of  the  century,  22  had  been  formed,  among  which  were  8  mu- 
tuals. The  first  American  companies  to  establish  what  is  known 
as  the  "agency  system"  were  the  Hartford  and  the  Aeti\a, 
incorporated  in  Connecticut. 

In  no  state  was  there  at  first  any  legal  control  or  super- 
vision over  the  business  of  fire  insurance  and  it  was  conducted 
in  such  a  manner  that  the  companies  frequently  failed,  particu- 
larly whenever  a  great  fire  occurred,  resulting  in  great  loss  to 
insurers.  Consequently,  after  the  New  York  conflagration 
in  1835,  various  states  began  to  enact  laws  designed  to  compel 
the  companies  to  so  conduct  their  business  and  maintain  such 
assets  as  would  afford  reasonable  security  to  insurers. 

COMBINATION  BEGINS. 

Up  to  1866,  in  the  United  States,  free  competition  had 
been  the  universal  rule,  but  in  that  year  the  companies  formed 
the  "National  Board  of  Fire  Underwriters,"  organized  for  the 
purpose  of  fixing  and  maintaining  fire  insurance  rates.  Later 
on,  for  various  causes,  this  particular  function  of  this  organi- 
zation was  abandoned,  although  its  existence  is  still  continued 


11 

for  utiier  purposes.  Tliis,  liowever,  does  not  mean  that  com- 
panies abandoned  their  monopolistic  practices  and  entered  into 
free  competition.  The  monopolistic  features  were  simply  rele- 
gated for  more  effective  exercise  to  other  orj^'anizations  of 
smaller  territorial  jurisdiction.  Those  which  alYect  Illinois  at 
the  present  time  are  the  Union,  the  Western  Insurance  Bureau, 
,111(1  the  Chicago  Board  of  Underwriters. 

ILLINOIS. 

Doubtless,  fire  insurance  was  elVected  in  Illinois  from  an 
early  date  by  the  ct^mpanies  from  other  states  or  foreign  nations, 
but  originally  there  was  no  State  supervision  of  any  kind,  and 
there  is  no  record  remaining  of  their  activities.  Prior  to  the 
year  1869,  Illinois  insurance  companies  each  received  charters 
by  special  acts  of  the  legislature.  The  first  company  char- 
tered was  the  Alton  ^larine  and  PMre,  February  7,  1835,  the 
office  of  which  was  at  Lower  Alton.  This  Avas  followed  by  the 
Chicago  Marine  and  Fire,  January  13,  1836,  the  office  of  which 
was  at  Chicago.  After  this  there  were  usually  a  number  of 
companies  which  received  charters  at  each  legislature  and,  up 
to  1869,  197  stock  companies  and  47  mutual  companies  had  re- 
ceived special  charters.  None  of  these  stock  fire  insurance 
companies  are  in  existence  today,  but  of  the  mutuals  12  are 
still  doing  business,  which  shows  that  the  mutual  principle  in 
this  State  has  been  more  enduring  than  the  stock  plan. 

The  Chicago  conflagration  of  1871  is,  of  course,  a  landmark 
in  insurance  history  in  Illinois.  It  is  stated  that  335  American 
companies  and  six  foreign  companies  suffered  loss  in  this  fire 
to  an  aggregate  amount  estimated  at  $88,634,122.  (Chicago 
and  The  Great  Conflagration,  Colber  &  Chamberlain,  1871,  p. 
313.)  But  57  of  these  companies  failed,  so  that,  according  to 
the  above  authority,  it  Avas  estimated  that  the  insured  would 
not  receive  more  than  thirty-five  millions  of  insurance;  this, 
however,  was  probably  an  overestimate.  The  report  of  the 
State  Auditor  for  1872  states  that  at  that  time  $25,763,723.40 
had  been  paid. 

SUPERVISION  BEGINS. 
By  acts  of  the  legislature,  approved  March  11th  and  26th. 
1869,  supervision  of  insurance  companies  doing  business  in  the 
State  was  conferred  upon  the  State  Auditor.  The  first  report 
of  this  office  was  issued  December  15,  1869,  which  gives  a  list 
of  all  the  insurance  companies  then  doing  business  in  the  State, 
as  well  as  a  list  of  those  domestic  companies  which  had  ceased 


12 

to  do  business  prior  to  that  time  and  of  the  foreign  companies 
which  had  withdrawn  from  the  State.  Following  this  were 
successive  acts  of  the  legislature  regulating  fire  insurance, 
which  it  is  unnecessary  to  outline  here.  The  legislature,  June 
20,  1893,  established  a  separate  Insurance  Department  to  be 
under  the  control  of  an  Insurance  Superintendent,  and  it  is 
under  this  act  that  the  Department  is  now  operated. 

FIRE  PREMIUM  A  TAX. 

In  the  case  of  fire  insurance  as  in  all  other  political,  social 
and  industrial  institutions  which  have  had  a  long  period  of 
historical  development,  subsequent  study  has  discovered  and 
formulated  certain  underlying  principles  or  truths  according 
to  which  its  development  and  evolution  has  occurred,  although 
its  historical  development  was  not  made  by  any  formal  or 
conscious  application  of  such  principles.  Perhaps  the  most 
important  of  these  general  principles  is  that  fire  insurance  is 
essentially  a  tax  for  the  purpose  of  spreading  the  loss  caused 
by  fire  to  certain  unfortunate  individuals  among  the  members 
of  the  whole  community  and  so  lessening  the  burden  of  each. 
This  conclusion  as  to  the  fundamental  nature  of  fire  insurance 
rates  is  admitted  by  practically  all  authors  who  have  gone  into 
the  theory  of  the  business,  including  those  writing  from  the 
standpoint  of  the  companies  and  their  interests,  as  well  as 
authorities  not  directly  connected  with  the  business.  For  in- 
stance, Mr.  A.  F.  Dean,  Manager  of  the  "Western  Department 
of  the  Springfield  Fire  and  Marine  Insurance  Company,  says: 

"Fire  insurance  rates  are  by  their  nature  a  tax." 
(State  Regulation  Fire  Insurance  in  the  Light  of  Ex- 
perience, A.  F.  Dean,  Chicago,  1909,  p.  7.) 
Another  author: 

"Fire  premiums  are  often  described  as  in  the 
nature  of  a  tax,  a  fire  insurance  tax,  which  the  various 
fire  insurance  companies  are  authorized  to  levy  by 
virtue  of  the  charters' and  licenses  issued  to  them  by 
the  several  States.  This  tax  is  paid  by  all  property 
owners  who  carry  fire  insurance,  and  is  simply  a 
method  of  distributing  the  loss. of  one  among  a  great 
many."  (Business  of  Insurance,  Dunham,  Vol.  1, 
p.  60.) 
And: 

"The  insurance  on  a  burned  building  does  not 
bring  back  the  property  that  was  destroyed ;  it  simply 
equalizes  the  loss  between  all  others  whose  property  is 
insured."  (Bulletin  418,  U.  S.  Geological  Survey,  p.  12.) 
Fire  insurance,  then,  being  a  tax,  the  next  question  which 


13 

demauds  oiu*  eousideratiou  is  the  agency  througli  which  this 
tax  is  collected  and  disbursed.  Most  other  taxes  are  collected 
and  disbursed  by  governmental  authority,  either  national,  state 
or  municipal,  but  the  insurance  tax  in  the  United  States  is  not. 
Here  the  collection  and  disbursement  of  the  immense  sums  of 
money  which  equals  to  two-thirds  the  entire  income  of  the 
United  States  Government,  is  carried  on  mostly  by  private  cor- 
porations, but  to  some  extent  by  Mutuals,  Inter-Insurers  and 
Lloyds.  These  corporations  and  other  organizations  are 
simply  institutions  for  the  purpose  of  collecting  and  adminis- 
tering fimds  paid  by  the  policy  holders  for  indemnity  against 
loss  by  fire.     Dean  says : 

"There  can  be  no  intelligent  understanding  of  the 
questions  involved  which  overlooks  the  fact  that  the 
aggregate  premiums  collected  by  all  the  companies 
each  year  in  the  United  States  constitute  a  general 
fund,  from  wiiich  all  losses  and  expenses  are  disbursed, 
the  remainder,  if  any,  being  the  average  profit  of  all 
the  companies.  This  fund,  in  its  collection  and  dis- 
bursement as  a  whole,  constitutes  the  activity  known 
as  fire  insurance."  (State  Regulation  Fire  Insurance 
in  tiie  Light  of  Experience,  A.  F.  Dean.  Chicago, 
1909,  p.  7.) 

This  being  so,  the  important  question  at  once  arises  as  to 
whether  or  not  the  present  agencies  are  the  best  and  most 
economical  for  this  purpose,  so  that  the  burden  of  taxation 
will  be  equitably  distributed  and  will  be  as  light  as  possible. 

PREMIUM  RATES. 

The  most  important  thing  about  any  tax  is,  first,  the 
amount  of  it;  and,  second,  how  it  is  apportioned  among  those 
who  must  pay  the  same. 

As  noted  above,  I  began  early  in  1914  to  investigate  this 
subject  of  the  amount  and  apportionment  of  the  fire  insurance 
rates  or  tax  in  Illinois,  and  have  already  submitted  to  you  a 
preliminary  report,  under  date  of  May  6,  1914,  on  this  subject. 
This  report  was  preliminary  in  nature  and  not  widely  circu- 
lated, and  I  believe  that  a  brief  re-statement  of  some  of  the 
information  therein  contained  is  desirable,  and  will  follow  this 
with  new  tables  showing  that,  according  to  her  individual  ex- 
perience, Illinois  is  enitled  to  a  substantial  reduction. 

The  facts  and  figures  given  are  entirely  trustworthy,  be- 
ing taken  from  the  schedules  of  rates  published  for  and  used 
by  the  companies  themselves,  fixing  the  premiums  charged  on 
properties  in  these  states. 


1.4 

COMPARISON  OF  RATES  IN  CHICAGO  AND  OTHER 
LARGE  WESTERN  CITIES. 

Annual  Dwelling  Rates. 

Frame,  Frame, 

Brick.               Brick,               Metal  Roof,  Shingle  Roof, 

CITY.                                    CLASS.     Metal  Roof.    Shingle  Roof.           Detached,  Detached, 

less  than  25  ft.  less  than  25  ft. 

CHICAGO   11/2         -27         .30  .675  .75 

Detached,  Detached, 

less  than  10  ft.     less  than  10ft, 

Detroit    2         .20  .25  .30  .35 

Cincinnati  1         .20  .25  .25  .30 

Cleveland     11/2         .20  .25  .25  .30 

Milwaukee    1         .25  .25  .35  .40 

St.  Louis 1%         .15  .15  .35  .40 

State.  Protected  Cities  Outside  Principal  Cities. 

Illinois    30  .35  .35  .40 

Ohio 25  .30  .30  .35 

Missouri 20  .25  .30  .35 

Comparison  With  New  York. 

An  even  more  striking  showing  is  made  by  a  comparison 
with  rates  in  force  in  New  York  City,  as  follows: 

Dwellings. 

Brick' 
Metal  Roof      Contents  Frame  Contents 

Chicago,  1  year..,..  27  27  50-70  50-70 

Chicago,  3  years...  54  54  100-150  100-150 

New  York,  1  year...  10  16  16  20 

NewYork,  3years..  25  40  40  50 

Flats. 

Brick 
Metal  Roof       Contents  Frame  Contents 

Chicago,   1   year 36  40  50-70  50-70 

Chicago,  3  years...  72  80  100-150  100-150 

NewYork,  1  year..  15  20  20  24 

NewYork,  3  years.  871/2  50  50  60 

Private  Stables  and  Outbuildings, 

Brick,  Stone,       Contents  Frame,  Etc.     Contents 

Concrete,  Etc. 

Chicago,   1   year 30  30  50-60  50-60 

NewYork,  1  year..  20  26  32  32 

Practically  every  other  building  and  property  is  separately 
rated  by  the  Chicago  Board  of  Underwriters  so  that  direct 
comparisons  are  not  easily  made,  but  the  above  are  typical 
examples  of  the  exorbitant  rates  demanded  from  Chicago 
property  owners. 

Omitting  Chicago,  the  average  charge  in  the  large  Western 


15 

cities  for  the  brick  dwelling  with  standard  roof  is  20  cents  an- 
nual. Placing  Chicago  on  this  basis  would  cause  a  reduction 
of  about  25  per  cent  in  the  premiums  on  this  class.  Similarly, 
the  average  charge  for  the  frame  dwelling  with  shingle  roof  is 
35  cents  annual.  Placing  Chicago  on  this  basis  would  cause 
a  reduction  of  about  50  per  cent  in  the  premiums  on  this 
class. 

The  rates  for  Chicago  flats  are  obtained  by  adding  to  the 
brick  dwelling  basis  10  cents  for  a  three  story  flat,  and  20 
cents  for  a  four  story  flat.  If  these  differentials  were  retained 
in  connection  with  the  reduced  20  cents  basis,  there  would  be 
a  reduction  in  tlif  premiums  on  Ibis  class  of  n])out  22' -j  per 
cent. 

THE  DEAN  SCHEDULE. 
The  Dean  Schedule,  named  after  its  author,  Mr.  A.  F. 
Dean,  is  a  detailed  classification  purporting  to  make  rates 
proportionate  to  the  fire  hazard  involved,  on  mercantile  estab- 
lishments, factories,  etc.  The  rates  at  present  exacted  from 
the  owners  of  all  buildings  and  contents  of  these  classes  in 
Illinois  are  fixed  by  this  schedule,  as  applied  by  the  "Illinois 
Inspection  Bureau,"  which  is  described  later.  Dean  Schedule 
rates  vary  according  to  the  basis  tables  which  are  used.  The 
schedule  is  constructed  so  that  the  rates  produced  with  the 
100  table  are  twice  those  produced  with  a  50  table. 

Dean  Schedule  Basis  Tables. 

BRICK.  FRAME. 

M  —  u  S 

e  c  c  a 

2  i  2  2 

'a  OS  8 

ce  u  cc  O 

Illinois,  North   60  70  95  100 

Illinois,  South 70  70  05  100 

Ohio,  prior  to  1014 50  70  00  05 

Ohio,  1014   50  (iO  80  80 

Wisconsin 50  70  00  90 

Kansas 60  70  05  95 

Indiana,  Missouri  ;iiid  Michigan.  ..  .  60  70  05  95 

I  recently  received  reliable  information  concerning  rates 
in  eastern  states  from  a  well-informed  insurance  man.  who 
formerly  lived  in  Penn.sylvania,  and  who  recently  made  a 
trip  east,  during  which  he  visited  at  his  old  home  in  Pennsyl- 
vania, and  also  New  York  and  New  Jersey.  During  this  visit 
he  said  he  compared  notes  frequently  with  local  insurance 
agents  in  the  smaller  towns  and  country  di.stricts  of  these 
states,  and   found   that   the   rates  on   dwellings    were   usually 


16 

about  one-half  of  those  in  Illinois,  and  on  other  risks,  while 
the  difference  was  not  so  marked,  still  the  rates  were  much 
below  those  on  similar  properties  in  Illinois. 

It  appears  from  this  tabulation  that  Ohio  and  Wisconsin 
have  the  lowest  rates,  and  Illinois,  the  highest.  The  selection 
of  the  general  basis  tables  for  a  State  is  governed  b}^  two 
considerations,  the  existing  level  of  rates  when  the  schedule 
is  first  applied,  and  the  level  of  the  loss  ratio  for  a  long  term 
of  years.  There  is  no  reason  for  imposing  the  highest  level 
of  rates  on  Illinois,  except  the  fact  that  there  has  been  no 
legislation  in  this  State-  to  interfere  with  extortionate  practices. 
The  loss  ratios  for  33  years,  to-wit. :  1880  to  1913,  inclusive,  are : 

STATE.  Loss  Rario. 

Illinois    50.5% 

Indiana 52.2% 

Michigan    52.3% 

Missouri  59 .0% 

Ohio  52.1% 

Wisconsin    50 .4% 

It  thus  appears  that  Illinois  has  been  the  most  profitable 
State  of  the  group  for  a  period  of  33  years,  except  Wisconsin. 
The  volume  of  premiums  in  Illinois  is  equal  to  that  of  Michi- 
gan, Missouri,  and  Indiana,  combined,  and  exceeds  that  of 
Wisconsin  and  Ohio,  combined.  Moreover,  taxation  is  least 
in  Illinois  and  there  are  no  anti-compact,  anti-co-insurance  and 
valued  policy  laws  such  as  prevail  in  the  other  states.  Accord- 
ing to  insurance  logic,  by  reason  of  this  exemption  from  inter- 
ference, the  cost  of  operation  should  be  the  least  in  Illinois, 
and  rates  the  lowest. 

The  following  tabular  comparison  of  rates  was  obtained 
by  appljdng  the  basis  tables,  co-insurance  credits  and  term 
conditions  to  an  example  given  on  page  97a,  of  the  Dean 
Schedule. 

Rates  for  Building  and  Contents. 

Five  Story  and  Basement,  Brick,  Wholesale  Dry  Goods. 

BUILDING.  CONTENTS 

1  Year.  5  Years.  1  Year. 

Chicago,   Central   Dis.,   Class   11/2..      .66  2.64  1.305 

Chicago,  Outside  Cent.  Dis.,  Class  2 .  .      .70  2 .  80  1 .  25 

Chicago,  average 68  2 .  72  1 .  28 

Cleveland,  Class  1 47  1 .  41  .91 

Ohio,  Class  2 525  1.57  .96 

Wisconsin,  Class  2   .525  1.57  1.01 

St.  Louis,  Class  11/2 59  1.77  1 .  10 

Danville,  111.,  Class  2 63  1 .  89  1 .  13 


17 

Showing-  Percentag-e  Reductions  of  Dean  Schedule  Rates  Neces- 
sary to  Phice  Chicago  on  the  Same  Basis  as  the 
Cities  Listed : 

5  >r.  Builtlint;.  I  yr.  Contents. 

Rale  Reduces.  Rale  Reduces. 

Chicago  equal  to  Cleveland,  Class  1 50%  30% 

'•      "Ohio,  Class  2 44%  25% 

•  "   Wisconsin,  Class  2 44%  217© 

•  "   St.  Louis,  Class  IV- 35%  14% 

"      "   Danville,  111.,  Class  2....  30%  11% 

These  percentages  apply  to  all  rates  made  in  Chicago  by 
the  Dean  Schedule.  At  this  date,  the  Dean  Schedule  has  not 
been  applied  in  Chicago  to  the  outlying  small  risks,  but  the 
rates  in  force  upon  these  risks  are  apparently  on  a  line  with 
those  that  would  be  fixed  by  the  Dean  Schedule. 

The  National  Druggists'  Fire  Insurance  Company  reports 
that  about  two-thirds  of  its  Illinois  business  is  placed  in  Chi- 
cago, with  very  little  in  the  down-town  district.  This  company 
uniformly  takes  25  per  cent  off  the  Board  rate  to  fix  its  o^v^l 
rate.  The  experience  in  Illinois  on  the  premiums  thus  reduced 
.shows  a  loss  ratio  of  only  40  per  cent,  which,  assuming  that 
60  per  cent  is  a  profitable  loss  ratio,  the  original  rates  could 
be  reduced  45  per  cent  and  still  leave  a  fair  margin  of  profit. 

The  two  Illinois  companies  which  write  small  retailers 
and  grocers  throughout  Illinois  show  loss  ratios  upon  their  total 
business  since  beginning  of  only  35  per  cent.  This  indicates 
that  there  is  a  general  practice  of  overcharging  small  dealers. 
While  these  specialized  companies  are  supposed  to  select  busi- 
ness and  therefore  to  show  a  better  loss  ratio  than  the  Board 
companies  can  obtain,  it  is  still  a  fact  that  the  rates  upon  this 
class  can  be  reduced  25  per  cent  and  show  a  profit  for  the 
average  quality  of  business  handled  by  the  Board  companies. 

The  Chicago  rates  established  by  the  Dean  Schedule  were 
the  climax  of  a  series  of  increases,  beginning  with  February, 
1894.  The  admitted  purpose  of  the  Dean  Schedule  i.s  to  collect 
enough  insurance  premiums  to  pay  the  losses,  expenses  ;ind  a 
profit.  To  do  so,  this  schedule  makes  varying  rates  on  differ- 
t-nt  properties,  according  to  material,  exposure,  occupancy, 
construction  and  other  factors,  the  aim  being  to  make  favor- 
able allowance  for  conditions  which  tend  to  reduec  fire  lo.sses 
and  impose  higher  rates  where  conditions  are  unfavorable. 
This  purpose  is  a  good  one,  but  injustices  ari.se  because  these 
allowances  and  charges  are  not  founded  upon  the  only  just  and 
proper  basis  for  making  such  differences;  namely,  the  actual 


18 

experience  as  to  fire  losses  in  the  various  classes  into  which 
property  is  subdivided  in  this  schedule. 

"Practically  the  only  light  that  is  thrown  upon   - 
the  hazards  in  fire  insurance  is  that  of  experience,  and 
furthermore  the  experience  to  be  worth  anything  must 
not  include  one,  but  many  similar  cases."     (Rep.  N.  Y. 
Com.  1910,  p.  69.) 

' '  Fortunately  there  is  one  guide  in  this  matter,  the 
past;  otherwise  the  problem  would  be  quite  hopleless." 
(lb.  p.  39.) 
The  allowances  and  penalties  are  merely  the  estimates  or 
guesses  of  Mr.  Dean  as  to  the  importance    of    these   various 
factors.      The  fact  that  Mr.  Dean  is  an  experienced  insurance 
man  does  not  render  his  schedule  perfect    or    even    approxi- 
mately so.      His  skill  gives  it  some  degree  of  excellence  and 
makes  his  a  schedule  which  accomplishes  its  main  purpose, — 
the  securing  of  a  satisfactory  income  for  the  companies.     But 
Mr.  Dean  does  not  know,  nor  does  any  one  else,  whether  or 
not  the  rates    imposed    upon    different    properties    correctly 
represent  the  relative  fire  hazards. 

In  addition  to  these  inherent  defects  in  the  present 
schedule  rating  used  in  Illinois,  there  are  possibilities  of  great 
injustices  in  its  application  to  individual  risks.  A  concrete 
example  of  this  is  furnished  by  the  rating  of  a  commercial 
building  in  a  small  Illinois  city.  The  insurance  on  this  was 
carried  for  many  years  by  a  prominent  "Combine"  company 
agency,  but  finally  the  owner  gave  the  insurance  to  another 
agency.  The  first  agency  then  in  some  way  procured  a  repre- 
sentative of  the  Illinois  Inspection  Bureau  to  make  a  re- 
survey  of  the  building.  He  did  this  and  purported  to  dis- 
cover some  previously  undetected  defect  and  nearly  doubled  the 
rate ;  conditions  in  the  meantime  being  absolutely  unchanged. 
This  was  favoritism  in  its  most  pernicious  form  and  is  possible 
at  all  times  under  the  present  system  of  schedule  rating.  An- 
other remarkable  example  of  the  inequitable  result  of  the 
schedule  occurred  at  Rock  Island.  A  large  wooden  shed 
building  was  occupied  as  a  lumber  yeard,  and,  while  so  used,  the 
rate  was  $1.00.  The  use  of  this  shed  was  changed  from  a 
lumber  yard  to  a  storage  room  for  iron  car  wheels,  which,  of 
course,  are  absolutely  unburnable  and  cannot  be  injured  by 
fire,  but  the  Dean  Schedule  raised  the  rate  on  the  building,  as 
thus  used,  to  $1.40. 


19 
ILLINOIS  EXPERIENCE. 

From  the  records  ol'  Uiis  Di'purtiucut,  (^luade  up  from  tlie 
sworn  statements  of  the  stock  companies),  I  have  compiled 
tables,  covering  the  fire  business  in  Illinois.  These  records  are 
full  and  complete  since  the  year  18G*). 

Experience  for  Twenty  Years. 

Per  Ceni 
Years -Period  Premiums  Rec'il  Losses  Paid  ,q  Premiums 

I  Loss    Rario  > 

1909-1913,    5  years... $115,436,149  $58,424,018  50.6% 

1904-1913,  10  years...  220,729,045  106,105,147  48.% 

1899-1913,  15  years.  ..   296,632,964  146,348,954  49.3% 

1894-1913,  20  years...   356,749,351  179,374,010  50.3% 

Taking  the  entire  experience  of  stock  companies  on 
Illinois  business  from  1869  to  1913,  inclusive  (45  years),  and 
including  the  Chicago  couHagration  (1871),  the  loss  ratio  is 
only  2%  above  that  of  the  last  twenty  years,  or  the  last  five 
years.  These  figures  reveal  the  fact  that  Illinois  citizens  have 
paid  the  companies  approximatel}'  $2  in  premiums  for  every 
$1  returned  for  fire  losses,  uniformly  for  over  twenty  years. 

In  making  up  the  above  table,  it  was  necessary,  on  account 
of  the  arrangement  of  the  reports,  to  compute  the  experience 
separately  of  the  Illinois  companies,  companies  of  other  states. 
and  United  States  branches  of  foreign  companies,  and  one 
result  obtained  which  it  is  interesting  to  note  is  that  Illinois 
companies,  with  less  than  ten  per  cent  of  the  business  of  com- 
panies of  other  states,  show  as  level  a  loss  ratio.  This  is  also 
true  of  the  companies  of  foreign  nations,  doing  business  in  Illi- 
nois, which  transact  about  forty  per  cent  of  the  business. 

The  loss  ratios  of  all  companies  combined,  for  the  respec- 
tive five  year  periods  of  the  past  twenty  years,  are  as  follows: 

Period  Loss  Ratio 
1894-1898  54.9% 

1899-1903  53.    % 

1904-1908  45.2% 

1909-1913  50.6% 

The  companies  contend  that  a  reasonable  loss  ratio  on  busi- 
ness in  cities  subject  to  conflagration  hazard,  is  55%,  and  on 
property  not  subject  to  this  hazard,  60%.  Therefore,  even 
figuring  on  a  basis  that  the  companies  regard  as  "satisfactory", 
Illinois  is  entitled  to  a  substantial  reduction  in  rates. 

The  companies,  however,  claim  that  because  there  has 
been  a  .slight  raise  in  the  lo.ss  ratio  when  calculated  on  all  the 


20 

insurance  written  in  the  State  during  the  past  five  years,  and 
a  slight  decrease  in  the  average  rate  for  the  same  period 
they  should  not,  therefore,  now  be  asked  to  reduce  rates.  This 
position  might  be  well  founded  if  the  rates  at  the  beginning  of 
this  period  had  been  equitable  or  approximately  so,  but  this 
is  not  true. 

Furthermore,  an  examination  of  the  details  of  fire  insur- 
ance statistics  during  this  period,  1909  to  1913  inclusive,  shows 
that  in  the  class  containing  dwelling  houses,  flats,  etc.,  with 
their  contents,  which  is  the  class  comprising  the  largest  num- 
ber of  risks,  and  is  also  the  class  in  which  there  is  practically 
no  competition,  the  trend  has  been  just  the '  opposite ;  rates 
have  remained  practically  stationary,  while  the  loss  ratio  has 
declined,  as  shown  in  the  following  table  taken  from  the  com- 
panies' annual  report  to  my  Department. 

Dwellings  and  Contents. 

Year 

1909 
1910 
1911 
1912 
1913 

The  cause  of  the  small  increase  of  the  loss  ratio  on  the 
totals  for  all  the  property  in  the  State,  and  the  slight  decline  in 
the  average  rate  on  the  same,  is  found  in  the  risks  in  which 
there  is  competition  from  mutuals  and  inter-insurers,  which 
has  caused  a  lowering  of  rates  in  certain  classes,  and,  of  course, 
a  corresponding  raise  in  the  loss  ratio.  This  can  only  be  im- 
perfectly shown  from  existing  statistics  because  these  have  not 
been  subdivided  into  enough  classes.  A  clear  indication  of 
this  trend,  however,  is  given  by  the  statistics  of  the  classes 
"Special  Hazards"  and  "All  Other  Hazards,"  covering  the 
same  five  years  experience.  "Special  Hazards"  and  "All 
Other  Hazards,"  are  classes  of  business  in  which  there  is  much 
competition  between  the  stock  companies,  mutuals  and  inter- 
insurers,  and  it  is  noticeable  that  the  average  rates  have  de- 
clined, while  the  loss  ratios  have  rapidly  increased.  The  fol- 
lowing tables  show  the  statistics  of  "  Special  Hazards"  and 
"All  Other  Hazards": 


Premiums  Rec'd. 

Rates  per  $100 

Per 

Cent  of  Loss 

Risks  Written 

(Loss  Ratio) 

$5,641,292 

.95 

46% 

6,059,113 

1.01 

43% 

6,265,195 

.94 

48% 

6,516,806 

.95 

48% 

6,604,524 

.95 

43% 

Hki. 


21 
Special  Hazards. 


Premiums  RecM. 

Ilatcs   per  1100 

Per  Cent  of  Loss 

Ui-sks  Written 

(Loss  Ratio) 

$5,628,115 

1.33 

41% 

5.685.941 

1.27 

58% 

6.246.482 

1.19 

57% 

5,689,066 

1.25 

60% 

5,544.627 

1.23 

69% 

All  Other  Hazards. 

$2,182,299 

1.05 

39% 

2.927.523 

1.04 

40% 

3.167.251 

.99 

44% 

3.617,707 

.98 

45% 

4,150,089 

.83 

57% 

Year 

1909 
1910 
1911 
1912 
1913 


1909 
1910 
1911 
1912 
1913 

The  class,  "Specal  Hazards,"  is  composed  of  risks  rated 
individually.  The  class,  "All  Other  Hazards,"  comprises 
everythiug  not  included  in  dwellings,  mercantile  risks  and 
special  hazards.  The  trend  of  rates  and  loss  ratios  in  each 
class  shows  clearly  wherein  the  cause  for  the  decrease  in  rate 
and  raise  in  loss  ratio  lies,  namely,  competition. 

A  few  months  ago,  when  the  present  investigation  was 
beginning,  we  find  open  admissions  that  Illinois  rates  are  not 
entirely  e(iuitable.  The  Market  World  and  Chronicle,  an  in- 
surance journal  of  New  York,  in  its  June  13,  1914,  issue,  made 
the  following  statement: 

"At  present  the  companies  are  compiling  statis- 
tics to  show  the  n-asonableuess  of  Illinois  rates  in  gen- 
eral, aside  from  dwelling  rates.  They  hope  to  satisfy 
the  Admini-stration  that  most  of  the  rates  are  fair  and 
that  they  are  going  to  do  the  fair  thing  regarding 
dwelling  rates,  by  applying  the  dwelling  house  schedule 
as  soon  as  it  is  prepared.  A  committee  from  several 
of  the  big  organizations  has  been  working  on  this 
schedule  for  a  nuinl)r'r  of  months.  It  is  said  it  ought  to 
be  completed  by  now,  but  it  is  not. ' ' 

Ih  is  noticeable  that  no  defense  is  offered  as  a  justification 
for  present  dwelling  rates,  and,  since  the  promised  reduction  is 
not  yet  in  force,  it  is  evident  that  the  companies  had  no 
intention  of  granting  relief  even  on  this  class. 

The  same  publication,  in  its  May  16,  1914,  i.ssue,  expressed 
this  opinion: 

"Certain  it  is  that  the  companies  are  in  an  unten- 
able position  as  regards  preferred  rates." 
Rough   Notes,   an   insurance   journal    published    at    Indi- 
anapolis, on  May  31.  1914.  expressed  the  same  opinion: 

"There  is  more  or  less  uneasiness  in  local  circles 
in  Chicago  as  to  whether  the  State  Insurance  Depart- 


22 

ment  will  not  take  some  action  that  may  lead  to  reduc- 
tion in  rates  in  the  city.  It  is  known  that  a  large 
number  of  underwriters  feel  that  preferred  rates  in 
Chicago  can  well  be  reduced,  and  that  there  is  no  de- 
fense for  keeping  the  rates  on  this  class  higher  in 
Chicago  than  anywhere  else  in  the  State." 

Similar  overcharges  oppress  the  Insuring  Public  in  other 
states  and  have  received  the  attention  of  various  insurance 
departments.  As  the  result  of  an  investigation  which  he  has 
recently  made,  Commissioner  of  Insurance  Herman  L.  Ekern, 
of  Wisconsin,  has  arrived  at  conclusions  which  are  well  sum- 
marized in  a  recently  issued  abstract  of  his  forthcoming  report 
on  this  subject.  Commissioner  Ekern  was  chairman  of  the 
Committee  on  Rates  of  the  National  Convention  of  Insurance 
Commissioners  and  his  profound  study  of  the  subject  renders 
what  he  says  of  such  importance  that  I  attach  the  abstract 
hereto  as  an  appendix  and  desire  to  call  your  special  attention 
to  the  same,  and  particularly  to  his  final  recommendation, — 

"Laws  for  inquiry  into  and  the  regulation  of  fire 
insurance  rates  are  absolutely  necessary.  This  is  one 
of  the  big  problems  in  Wisconsin." 

I  could  extend  these  comparisons  of  rates  and  discussion 
almost  indefinitely,  but  do  not  believe  this  necessary  or  desir- 
able, for  I  have  given  enough  examples  to  show  clearly  that 
great  inequalities  and  injustices  are  being  inflicted  on  Illinois 
policyholders  by  exorbitant  and  discriminatory  rates,  fixed  and 
maintained  by  the  "Combines."  In  order  to  understand  how 
these  wrongs  may  be  removed,  we  must  consider  briefly  the 
correct  principles  of  fire  insurance  rate-making. 

RATE-MAKING. 

The  only  just  basis  for  rate-making  is : 

(1)  To  have  a  scientific  and  detailed  classification  made 
of  all  risks  in  the  State,  putting  in  the  same  class  all  those  hav- 
ing approximately  the  same  fire  hazard. 

(2)  To  collect  all  the  experience  possible  as  to  fire  losses 
on  each  of  the  different  classes  and  on  the  basis  of  this  fix  a 
fair  rate. 

The  classification  and  especially  the  rate  should  be  sub- 
ject to  modification  from  time  to  time  as  the  further  accumu- 
lation of  experience  might  indicate.  This  can  only  be  done 
by  the  authority  of  the  State.  The  individual  insurance  com- 
panies are  absolutely  helpless  to  carry  out  such  an  undertak- 
ing, even  if  they  honestly  desired  so  to  do.     Neither  can  it  be 


23 

done  by  a  "Combine"  of  the  companies  or  through  co-opera- 
tive action  of  the  companies  because  they  have  no  authority  to 
obtain  information  of  the  experience  of  all  the  companies  upon 
which  the  rates  must  be  based. 

The  State  of  Illinois  is  large  enough  to  give  trustworthy 
averages  for  the  purpose  of  fixing  insurance  rates  for  practi- 
cally all  classes  of  property  in  the  State.  It  might,  however, 
be  found  desirable  in  the  case  of  a  few  classes  containing  only 
a  small  number  of  risks  to  supplement  Illinois  experience  by 
that  of  similar  risks  under  similar  conditions  in  other  states. 
As  a  preliminary  attempt  in  securing  fire  loss  experience,  I 
have  prepared  a  set  of  questions  to  elicit  such  information  on 
certain  classes  of  Illinois  property,  each  of  which  contain  large 
numbers  of  risks.  These,  if  correctly  and  honestly  answered 
by  the  companies,  will  furnsh  sufficient  data  for  a  preliminary 
schedule  of  rates  and  upon  this  a  complete  system  can  be 
worked  out  as  further  experience  accumulates  for  applica- 
tion in  a  reformed  method  of  fire  insurance  which  I  will  de- 
scribe later. 

Illinois  is  so  situated  that  we  do  not  suffer  from  many 
extra  hazards  that  increase  fire  losses  in  other  states.  We  are 
outside  of  the  earthquake  zone,  free  from  prevailing  high 
winds,  and  forest  fires,  hence,  by  including  other  states  with 
Illinois  in  arriving  at  insurance  rates,  the  Illinois  rates  are 
influenced  unfavorably.  The  People  of  Illinois  can  themselves 
work  out  a  trustworthy  system  of  insurance,  which  will  not 
only  protect  them  against  monopolies,  but  procure  fire  insur- 
ance at  much  more  reasonable  rates. 

In  the  annual  reports  filed  by  the  companies  all  losses  of 
every  kind  and  character  are  lumped  together  and  compared 
with  the  premium  income  from  all  classes  of  property  to  show 
the  result  of  the  year's  experience.  By  this  method  the  com- 
panies are  able  to  conceal  the  classes  on  which  rates  are  ex- 
orbitant ;  and  the  classes  in  which  over-insurance  is  permitted, 
with  its  consequent  result  of  enormous  arson  and  careless  fire 
losses.  It  also  permits  thorn  to  conceal  the  losses  on  classes  on 
which  temporary  lower  rates  are  made  to  drive  out  inde- 
pendent companies,  which  losses  must  be  offset  by  excessive 
profits  on  other  classes.  If  every  class  of  business  was  rated 
according  to  its  own  past  experience  and  had  to  be  self- 
supporting  in  order  to  make  the  aggregate  business  profitable, 
the  companies  would  of  necessity  immediately  eliminate  the 
bad  risk. 


24 

FORMER  POSITION  OF   COMPANIES  AS  TO 
"EXPERIENCE." 

The  proper  basis  for  rate-making  has  long  been  the  sub- 
ject of  discussion  and  agitation.  In  the  past  the  companies 
have  contended  that  rate-making  was  an  occult  thing,  Avhich 
<^;ouId  not  be  understood  by  anyone  who  had  not  been  engaged 
in  the  business  for  a  lifetime;  "experience," — that  is,  the 
records  of  losses,  was  no  guide  whatever  in  estimating  future 
losses.  This  position  was  maintained  because  the  companies 
desired  to  avoid  the  compilation  of  fire  insurance  statistics, 
and  thus  conceal  the  facts  from  the  public.  The  selfishness 
and  fallacy  of  this  position  has,  however,  been  so  clearly 
demonstrated  in  late  years  that  the  "Combine"  has  been  forced 
to  abandon  it,  and  in  the  fall  of  1912,  as  a  result  of  pressure 
brought  to  bear  by  the  National  Convention  of  Insurance  Com- 
missioners, an  "actuarial  committee"  of  the  "Combine"  was 
appointed.  At  the  April,  1914,  meeting  of  the  Insurance  Com- 
missioners in  Chicago,  the  committee  made  a  report  in  which  it 
declared  that  past  experience  was  no  guide  to  future  rate-mak- 
ing. This  report  was  severely  scored  by  certain  Insurance  Com- 
missioners and  the  committee  promised  to  pursue  the  subject 
further  and  make  another  report.  Under  date  of  September  9, 
1914,  this  committee  issued  a  report  styled  "A  Standard  Classi- 
fication" of  occupancy  hazards  and  loss  report  forms  for  use  in 
ascertaining  fire  cost. 

COMPANIES  AND  CLASSIFICATION. 

A  very  clear  expression  of  the  companies'  position  is  con- 
tained in  the  following  quotation  from  the  October  15,  1914, 
issue  of  the  Western  Underwriter,  an  insurance  journal,  in 
discussing  this  "Standard  Classification." 

"Doubtless  much  opposition  will  arise  to  an 
acknowledgment  of  the  value  of  classification.  Those 
who  are  contending  against  the  move  feel  that  Under- 
writers will  be  stultifying  themselves  and  turning 
back  the  pendulum  in  yielding  to  the  pressure  that 
may  be  exercised  by  some  States  and  Commissioners 
for  classification. 

"These  men  argue  that  the  companies  should 
undertake  to  point  out  the  fallacy  of  trying  to  use 
classified  experience  as  a  basis  or  guide  in  rate-making 
and  converting  the  authorities  to  a  true  under- 
standing." 

From  an  examination  of  this  report  it  does  not  appear  to 
be  made  in  good  faith,  but  is  a  continuation  of  the  "Combine's" 


25 

policy  of  concealment.  For  instance,  under  "non-hazardous," 
there  are  thirteen  classes  of  buildings  and  contents,  and  among 
the  largest  classes  included  are : 

1-  2 — Barns,  and  stables,  private  (other  than  farms), 
3-  4 — Churches  and  chapels. 

9-10 — Dwellings,  witliout  barns  (excluding  classes 
ll-K),  inclusive;  these  classes  are  "palatial 
dwellings,"  "summer  or  winter  only,  dwell- 
ings" and  "farm  dwellings"). 
15-16 — Dwellings  occupied  for  farming  purposes. 
17-18 — Farm  barns  and  other  outbuildings  occupied 
for  farming  purposes. 

All  kinds  of  buildings  of  these  various  classes  are  lumped 
together  without  regard  to  material  or  location,  except  that 
in  a  prefactory  note  "For  complete  designation  of  classes,  there 
is  to  be  added  to  the  class  number — 

X  for  Fireproof.  U  for  Unprotected. 

Y  for  Brick.  P  for  Protected. 

Z  for  Frame.  S  for  Sprinklered." 

A  schedule  based  on  such  a  classification  and  experience 
accumulated  thereon  would  be  unjust  and  inequitable.  There 
is  a  great  ditYerence  in  the  fire  hazard  of  buildings  having 
shingle  roofs  and  buildings  having  slate,  tile,  metal  or  similar 
roofs.  A.ssuming  tiiat,  by  "unprotected"  and  "protected,"  the 
distinction  is  made  between  buildings  located  in  cities  with 
fire  departments  and  those  where  there  are  no  fire  departments, 
this  distinction  is  wholly  inadequate.  The  "Combine's"  own 
Illinois  Inspection  Bureau,  for  rating  purposes,  classifies  cities 
with  respect  to  the  fire  protection  into  eight  classes,  and  there 
certainly  should  be  a  distinction  between  the  risk  on  a  building 
in  the  city  having  such  a  fire  department  as  tliat  of  Chicago, 
and  that  of  a  village  with  a  hand  fire  hose  cart. 

The  loss  experience  is  accumulated  for  rate-making  pur- 
poses, consequently,  it  should  be  accumulated  for  each  class 
for  which  separate  rates  are  made.  A  large  part  of  the  popu- 
lation of  the  State  lives  in  cities  and  heavy  taxes  are  paid  for 
the  maintenance  of  fire  departments.  These  are  effective  and 
furnish  groat  protection,  particularly  the  cities  of  the  first, 
second  and  third  classes,  and  property  owners  therein  are  en- 
titled to  have  the  experience  in  these  cities  compiled  separately 
and  if,  as  is  certainly  the  case,  there  is  a  difference  in  the 
fire  loss,  they  are  entitled  to  a  corresponding  reduction  in 
rates  as  compensation  for  the  taxation  which  they  bear  to 
support  the  fire  departments. 

Furthermore,  this  classification  lumps  together  all  dwellings, 


26 

from  the  dilapidated  tenement  shack  to  a  mansion.  It  is  un- 
just to  compel  the  careful  home-owners  of  the  middle  class  to 
pay  rates  justified  by  the  tenement  fire  hazard.  The  committee 
was  very  careful  to  provide  that  only  "amounts  written"  and 
^'losses"  should  be  reported,  and  that  nothing  should  be  said 
about  premiums  collected.  What  reason  could  there  be  but  a 
desire  to  conceal  the  loss  ratio,  which  shows  whether  rates  are 
■excessive  or  not? 

PROOF  THAT  REDUCTION  IN  RATES  IS  POSSIBLE. 

Some  indication  of  the  reductions  which  are  possible  in 
insurance  cost  is  afforded  by  the  well  conducted  mutuals  and 
inter-insurers.  In  these  co-operative  organizations  every  care 
is  taken  to  effect  insurance  only  on  the  property  of  careful  and 
honest  owners.  Provision  is  also  made  by  frequent  inspection, 
and  otherwise,  to  see  that  the  insured  property  is  kept  in 
such  condition  as  to  reduce  the  fire  hazard  to  the  minimum. 
Usually  a  sprinkler  system  is  required.  By  such  means  the 
cost  of  insurance  has  been  reduced  to  one-fourth  to  one-eighth, 
and  even  one-tenth  of  the  stock  company  rates. 

Another  proof  of  the  reduction  possible  in  insurance  rates 
is  afforded  by  foreign  countries. 

FIRE  INSURANCE  PREMIUM  RATES  IN  EUROPE. 

Germany. 

When  we  come  to  examine  into  the  fire  insurance  premium 
rates  in  European  countries,  we  find  them  extraordinarily  low. 
According  to  the  absolutely  reliable  authority  mentioned 
above,  (Das  Deutsche  Feuerversicherungswesen,  Biederman, 
et  al,  1913,  Vol.  2,  p.  559),  the  average  premium  rate  for  the 
public,  (state,  provincial,  city,  etc.)  insurance  institutions 
throughout  the  entire  German  Empire  for  1911  was  13.4  cents 
per  $100.00,  and  for  the  period  of  five  years  (1907  to  1911, 
inclusive),  the  average  rate  was  12.9  cents  per  $100.00.  This 
is  approximately  one-ninth  of  the  average  rate  in  the  United 
States,  which  for  these  periods  were  106.1  cents  per  $100.00, 
and  110.1  cents  per  $100.00,  respectively,  (Spectator  Year 
Book,  1914,  p.  420).  In  1911,  these  German  State  insurance 
institutions  returned,  as  losses  paid  to  the  premium  payers, 
84.3%  of  the  amounts  collected  from  them,  and,  at  the  same 
time,  added  to  their  reserve  2,292,113  marks.  Consequently, 
the  entire  expense  of  administration  was  only  13%.  For  the 
five  year  period,  1907  to  1911,  calculated  in  the  same  way,  the 


expense  of  adiuinistration  uas  13.7%.  In  the  State  insurance^ 
tlie  surplus  belon<?s  to  the  j)olicyholders,  but  in  the  stock 
company  insurance,  the  surplus  belongs  to  the  stockholders, 
and  is  entirely  lost  to  tlie  policyholders. 

These  are  strikingly  different  figures  from  the  average 
of  about  45%  expense  and  profit  in  American  stock  company 
insurance. 

Switzerland. 

In  Switzerland,  similarly  low  rates  prevail.  The  latest 
year  for  which  figures  are  available  is  1899  (Assurance  Contre 
L'  Incendie.  par  L'Etat  ou  les  Cantons,  en  Suisse  &  dans  les 
Pays  Seandinaves.  Alglave,  1902,  p.  363),  in  which  the  sum 
insured  was  6,320,561,515  francs,  and  the  premium  receipts 
were  6,858,998  francs,  so  that  the  premium  rate  in  American 
money  would  amount  to  10.1  cents  per  $100.00.  In  the  same 
year,  4,061,088  francs  were  returned  to  the  policyholders  for 
fire  losses,  so  that  the  loss  ratio  was  59.2  per  cent.  The 
amount  of  the  surplus  for  this  year  is  not  given,  so  that  it  is 
impossible  to  calculate  what  the  expense  percentage  was  in 
Switzerland  for  this  year.  For  the  year  1897.  the  premium 
rate  calculated  in  American  money  was  11.5  cents  per  $100.00, 
and  the  loss  ratio  was  56.4%.  For  the  same  reason  as  in  the 
previous  year,  it  is  impossible  to  get  the  actual  expense  per- 
centage. For  the  United  States,  premium  rates  are  not  available 
for  these  years  separately,  but  for  the  period  1891  to  1900,  the 
average  rate  was  103.7  cents  per  $100.00.  (Spectator  Year 
Book,  1914,  p.  420.) 

Norway, 

In  Norway  the  average  State  insurance  premium  in  the 
rural  districts  for  the  period  of  1895  to  1897,  inclusive,  was 
6.9  cents  per  $100.00.  In  the  cities,  13.8  cents  per  $100.00. 
Taking  both  the  city  and  country  districts  together,  the  aver- 
age premium  for  this  period  was  11.7  cents  per  .$100.00. 

The  rate  average  in  the  Unitod  States  for  period  including 
these  years  was  103.7  cents  per  $100.00. 

FIRE  PREVENTION  METHODS  NOT  IN  GOOD  FAITH 
FAVORED  BY  COMPANIES. 
The  "Combine"  fonipjmit's  arc  reluctant  to  inform  a 
property  owner  of  the  reduction  in  rates  to  which  he  might 
be  entitled  by  the  installation  of  sprinkler  systems  or  other 
fire  preventive  devices,  becau.se  the  installation  of  such  im- 
provements would   bring  the   buildings   within   classes   which 


28 

are  much  sought  after  by  high  class  mutuals  and  inter-insurers. 
So  long  as  a  risk  is  in  hazardous  classes  the  "Combine"  has 
a  monopoly,  and,  so  long  as  the  "Combine"  can  charge  any 
rate  it  sees  fit,  it  is  not  seriously  interested  in  reducing  the 
amount  of  losses. 

A  striking  example  of  the  result  to  be  obtained  by  the 
dissemination  of  such  knowedge  is  afforded  in  Texas,  where 
the  present  State  law  requires  that  a  detailed  statement  of  all 
the  different  items,  penalties,  credits,  etc.,  which  go  to  make 
up  the  final  insurance  rate  on  any  property,  must  be  placed  in 
the  policy.  This  has  given  every  insurer  information  concern- 
ing the  unfavorable  factors  which  cause  his  rate  to  be  high, 
and,  in  very  many  cases,  he  has  improved  his  property,  and 
thus  secured  a  rerating  at  lower  figures.  This  has  resulted  in 
a  great  improvement  in  a  large  part  of  the  insured  property 
in  the  State,  which  not  only  benefits  the  property  so  improved, 
but  also  lessens  the  hazards  to  adjoining  properties. 

COERCION  BY  THE  "COMBINE." 

It  has  been  the  practice  of  the  "Combine"  whenever  the 
question  of  State  -rate-making  has  been  up,  to  threaten  to 
withdraw  from  any  state  attempting  such  action.  They 
actually  put  their  threats  into  effect  in  Missouri  and  Kentucky, 
and  so  coerced,  to  some  extent,  the  government  of  those  States. 
This  was  done  by  the  concerted  action  of  the  companies  and 
shows  the  extent  and  power  of  the  agreement  existing  between 
the  members  of  the  "Combine."  The  action  in  these  States, 
however,  had  a  two-fold  purpose.  The  companies,  fearing  the 
effects  of  the  anticipated  decision  of  the  Supreme  Court  of  the 
United  States  in  the  Kansas  rate  case,  decided  to  make  ex- 
amples of  these  states  as  a  damper  to  agitation  for  relief  in 
other  states.  This  plan  has  been  carried  out  faithfully  and 
during  the  past  year  it  has  been  almost  impossible  to  find  a 
single  insurance  periodical  without  some  reference  to  the 
terrible  examples  of  Kentucky  and  Missouri.  These  threats 
have  already  been  made  in  relation  to  the  movement  in  Illinois 
for  an  equalization  and  readjustment  of  insurance  rates.  In 
order  that  the  selfish  and  illegitimate  motives  of  the  companies 
behind  this  agitation  may  be  understood  by  the  citizens  of 
Illinois,  it  will  be  necessary  to  give  a  short  account  of  the 
conduct  of  the  companies  in  this  connection. 


■29 

TACTICS   OF   THE   COMPANIES  IN  DEALING  WITH 
THIS  DEPARTMENT. 

The  fire  insurance  companies  have  made  repeated  claims 
that  unfavorable  commercial  conditions,  caused  by  the  present 
European  war,  entitled  them  to  immunity  from  prosecution 
for  violating  the  anti-monopoly  laws.  Their  position  is 
founded  on  the  allegation  that  fire  insurance  is  the  basis  of 
commercial  credit.  If  this  is  true,  it  is  certainly  time 
that  some  action  be  taken  to  see  that  commercial 
credit  does  not  remain  dependent  upon  the  monopolistic 
"Combine."  An  unsigned  circular  was  distributed  at  a  recent 
meeting  of  the  Illinois  Association  of  Bankers  in  Chicago, 
making  such  charges.  The  circular  was  a  verbatim  copy  of  an 
article  previously  appearing  in  the  Insurance  Post  of  Chicago, 
an  insurance  journal,  edited  by  T.  R.  Weddell,  official  publicity 
agent  for  the  "Union"  and  "Western  Insurance  Bureau,"  the 
two  "Combines"  now  attacked  by  an  anti-trust  suit.  It  is 
evident  that  the  fire  interests  preferred  to  do  their  fighting  in 
this  manner,  rather  than  by  any  direct  and  open  statements. 
A  brief  resume  of  the  proceedings  taken  is  a  complete  answer 
to  all  such  charges. 

The  investigation  of  fire  insurance  conditions  in  Illinois 
was  begun  in  March  of  this  year,  and  my  preliminary  report 
was  filed  with  you  on  May  6th.  On  June  16th,  we  gave  the 
companies  a  joint  hearing,  at  which  time  they  agreed  to  file 
their  answer  and  state  their  position  in  regard  to  the  demands 
made  upon  them  in  my  report,  within  thirty  days.  This  was 
long  before  commercial  conditions  were  disturbed  by  the  war, 
and  the  companies  had  ample  time  to  dispose  of  the  entire 
matter  weeks  before  the  outbreak  of  hostilities. 

No  answer  was  filed  but,  on  July  2nth,  I  gave  written 
notice  to  the  companies  to  file  their  long  overdue  answer  by 
August  10th ;  on  this  date  the  companies  .sent  a  representative 
to  you  and  pleaded  for  another  extension,  and  they  were 
granted  this  to  August  20th.  Plowever,  no  answer  was  then 
filed  or  ever  filed  by  the  companios,  nor  did  they  assign  any 
reason  for  their  failure  to  do  so.  Because  of  this  failure,  I  filed 
an  anti-monopoly  suit  on  August  27,  1914,  against  the  "Com- 
bine" companies  in  accordance  with  my  report  of  May  6,  1914, 
(p.  5),  in  which  I  said  that,  unless  the  organizations  and 
methods  of  the  companies  were  reformed  "in  such  a  manner  as 
not  to  be  in  violation  of  our  laws,  proceedings  should  at  once  be 
brought  against  them."   The  companies'  claim  is  false  that  this 


30 

anti-monopoly  suit  is  an  unfair  prosecution,  coming  without, 
warning  when  business  conditions  were  disturbed  by  the  war. 
After  the  commencement  of  this  suit,  however,  the  "Combine" 
companies  continued  their  dilatory  tactics,  and  on  November 
5th  they  sent  their  representative  to  Your  Excellency  with  a 
proposal  that,  if  if  I  should  agree,  as  complainant  in  said  suits, 
to  a  postponement  of  the  argument  on  the  pending  demurrer 
therein  from  November  7th  to  December  5th,  the  com- 
panies would  file  with  you  an  answer  to  my  said  report  of  May 
6th,  within  one  week  from  that  date,  and  that  representatives 
of  the  companies  would  meet  at  your  office  on  November  16th, 
1914,  for  the  purpose  of  conferring  with  us  in  reference  to  the 
allegations  in  my  said  preliminary  report,  and  also  with  regard 
to  proposed  legislation  in  relation  to  the  regulation  of  fire  in- 
surance rates  and  other  fire  insurance  matters  in  Illinois. 

After  waiting  until  the  representative  of  said  companies 
had  received,  as  he  claimed,  explicit  ratification  of  his  proposal 
from  his  principals,  he  returned  to  you  and  on  November  6, 
1914,  said  agreement  was  completed,  and  according  to  your 
directions,  the  postponement  of  the  argument  of  said  de- 
murrer entered  by  agreement  in  the  records  of  the  court. 
Nevertheless,  neither  did  the  companies  file  their  answer  a& 
promised,  nor  did  they  or  their  representatives  appear  on 
November  16th  at  your  office  for  said  conference,  nor  was  any 
excuse  or  explanation  given  for  not  doing  so.  I  next,  on  Novem- 
ber 19,  1914,  filed  in  court  a  motion,  supported  by  an  affidavit, 
setting  forth  the  facts  outlined  above,  to  set  aside  the  post- 
ponement of  argument  on  demurrer.  The  course  of  the  com- 
panies in  this  connection  is  unpardonable  and  a  plain  effort  to 
avoid  an  issue  upon  the  charge  that  they  have  been  exacting 
unreasonably  high  rates  agreed  upon  in  their  "Combine."  The 
insurance  companies  complain  of  my  investigation  and  say  that 
I  should  not  present  these  matters  to  the  courts  and  to  the 
Public.  If  I  am  not  right  in  my  version,  I  ask  the  judgment  of 
the  courts  and  the  Public  against  me,  and,  if  I  am  right,  I  ask 
that  both  sustain  me. 

UNDERWRITER  ANNEX  LITIGATION. 

The  entire  lack  of  good  faith,  upon  the  part  of  the  com- 
panies in  their  resistance  of  the  efforts  of  public  officials  to 
enforce  the  laws,  is  also  shown  by  their  conduct  in  the  present 
"underwriters  agency"  litigation  now  pending  in  the  United 
States  Court  of  the  Southern  Illinois  District. 


31 

In  April,  1914,  a  written  complaint  was  presented  to  me 
in  regard  to  companies  maintaining  "annexes"  which  issue 
"underwriters"  policies.  This  is  a  plan  which  had  grown  up 
largely  within  the  past  ten  years,  by  which  risks  were  insured 
by  unincorporated  concerns  called  "underwriters  agencies," 
but  the  policy  was  issued  over  the  name  of  some  regularly 
licensed  insurance  company.  After  some  examination  of  the 
subject  and  appreciating  the  importance  of  the  issue,  I  gave 
notice  of  a  public  hearing,  to  be  held  on  June  1st,  and  invited 
all  parties  interested  to  be  present.  At  this  hearing  the  com- 
panies participating  in  this  practice  were  represented  by 
counsel,  and  some  of  the  most  prominent  of  the  proprietors  of 
"underwriters  agencies,"  and  also  representatives  of  the  local 
-agents  of  Illinois.  Immediately  after  this  hearing,  representa- 
tives of  the  "Underwriters"  companies,  after  a  conference  in 
•Chicago,  at  once  sent  54  special  agents  throughout  the  State, 
dividing  the  State  into  17  districts.  These  special  agents 
called  upon  every  local  insurance  agent  and  urgently  solicited 
him  to  write  a  letter  to  the  Insurance  Superintendent,  pro- 
testing against  any  ruling  contrary  to  the  "underwriter" 
policy  scheme.  They  furnished  such  agents  as  they  could 
induce  to  use  them,  letters  already  written  to  be  copied  upon 
the  agents*  own  stationery.  In  this  way  they  attempted  to 
make  it  appear  that  the  agents  were  strongly  opposed  to  any 
ruling  against  "underwriters  agencies",  when,  in  fact,  the 
local  agents  as  a  body  were  and  are  opposed  to  the  "under- 
writers" policy  scheme.  This  is  shown  by  the  subsequent 
action  of  the  National  Association  of  Local  Insurance  Agents  at 
Minneapolis,  August  17,  1914,  which  passed  a  resolution  com- 
mending my  ruling,  as  did  also  the  State  Association  of  Local 
Insurance  Agents  at  their  annual  meeting  in  Springfield, 
September,  1914. 

After  the  hearing  I  took  the  matter  under  consideration 
and,  on  June  IGtli,  made  a  ruling  which  contained  a  full  out- 
line of  the  considerations  which  led  me  to  decide  against  the 
practice  of  issuing  the  so-called  "underwriters"  policies. 
This  ruling  was  printed  and  sent  to  all  fire  companies  lieensed 
in  this  State.  In  a  letter,  which  accompanied  the  ruling,  I 
allowed  the  companies  until  July  10th  to  indicate  whether  or 
not  they  were  willing  to  comply  therewith.  The  nature  of  the 
action  contemplated  was  clearly  indicated  in  the  ruling  itself 
in  which  I  said:  "I  shall  direct  that  proper  proceedings  be 
instituted  in  the  Courts  of  this  State  again.st    all    companies 


32 

issuing  such  policies,  to  compel  them  to  conform  with  the  laws 
of  this  State."  This  course  was  adopted  by  me  with  a  sincere 
desire  to  settle  the  "underwriter"  question  without  any  dis- 
turbance to  the  business. 

This  considerate  action  should  have  been  appreciated  and 
reciprocated  by  the  companies.  Instead,  however,  the  "under- 
writer" companies  hastily  combined,  concocted  a  sworn  bill 
containing  absolutely  false  allegations,  and  rushed  with  it  into 
the  United  States  Courts  before  July  10th  to  prevent  me  from 
enforcing  my  ruling.  These  companies,  by  thus  forcing  the  con- 
troversy into  the  United  States  Courts,  said  plainer  than 
words  that  they  have  no  faith  in  the  State  Courts  of  Illinois, 
Insurance  companies  of  other  States  do  business  in  Illinois  by 
permission  only.  They  are  business  guests  of  our  common- 
wealth. No  greater  affront  could  be  offered  the  State  of  Illi- 
nois than  this  action  for  an  injunction  against  a  State  official 
to  prevent  the  enforcement  of  a  State  law  by  a  State  court. 
Their  conduct  is  a  contemptuous  violation  of  the  spirit  of  the 
statutes  which  imperatively  require  the  Insurance  Superin- 
tendent to  immediately  revoke  the  license  of  any  foreign  com- 
pany which  removes  a  suit  brought  against  it  from  a  State 
Court  to  a  Federal  Court,  and,  also,  an  example  of  the  tactics 
of  this  monopoly  when  confronted  with  regulation  in  any  form. 

INSURANCE  JOURNALS. 

The  numerous  insurance  journals  well  scattered  over  the 
country  valiantly  uphold  the  companies  in  every  fight  against 
reform.  These  trade  papers  secure  their  income  almost  en- 
tirely from  company  advertising  and  derive  their  ideas  from  the 
source  of  their  income.  They  are  widely  distributed  among 
insurance  agents,  and  their  editors  are  past  masters  at  manipu- 
lating facts  and  figures  in  the  interest  of  the  companies. 

A  quotation  or  two  from  these  publications  will  show  the 
very  evident  use  that  is  made  of  them  by  the  "Combine." 
The  Insurance  Post,  of  Chicago,  111.,  an  insurance  journal  edited 
by  T.  R.  Weddell,  official  publicity  manager  of  the  Western 
Insurance  Bureau,  and  the  Union,  in  the  August  1st,  1914, 
issue,  in  discussing  the  investigation  being  made,  makes  this 
threat : 

"In  connection  with  the  activities  of  Insurance 
Commissioner  Potts,  of  Illinois,  in  the  matters  of  rates, 
annexes,  etc.,  the  fact  is  recalled  that  Mr.  Potts  has 
not  yet  been  confirmed  in  his  position  by  the  Senate. 
He  is  an  interim  appointee,  and  in  case  of  a  political 


upheaval,  such  as  is  quite  probaFjle  in  Illinois  this 
winter,  it  is  possible  tiiat  he  may  fail  of  confirmation 
when  his  name  is  submitted  to  the  Senate  under  the 
laws,  when  that  body  meets.  In  the  meantime  the  dis- 
position of  the  insurance  men  is  to  let  Mr.  Potts  alone, 
so  lontf  as  he  lets  them  alone,  but  to  serve  notice  on 
him  that  every  move  he  undertakes  which  is  not  justi- 
fied by  law  will  be  foucfht  to  a  finish.  This  includes 
his  demand  for  a  reduction  in  rates,  which  is  held  not 
to  be  a  matter  within  his  authority." 

Within  a  week  (issue  of  August  6th),  The  United  States 
Review,  another  insurance  journal,  published  in  Philadelphia, 
made  the  same  threat  of  the  political  intentions  of  the  fire 
interests : 

"It  is  said,  notwithstanding  that  he  (Potts),  has 
held  his  present  office  for  some  time,  that  he  has  not 
yet  been  confirmed  in  his  position  by  the  Illinois 
Senate ;  also  that  he  is  an  interim  appointee,  and  that 
in  the  event  of  a  political  upheaval  in  the  State  during 
the  coming  winter,  which  is  thought  to  be  highly 
probable,  he  may  fail  of  confirmation  when  the  Legis- 
lature then  meets.  Presumably  he  is  not  much  con- 
cerned about  such  a  possibility,  and  at  the  same  time 
imagines  that  he  is  strong  enough  to  face  all  the  music 
that  may  come  along  regarding  any  or  all  of  his  official 
acts,  but,  nevertheless,  some  of  his  good  friends  should 
quietly  admonish  him  that  in  assailing  the  fire  insur- 
ance interests  of  his  State,  as  he  has  been  doing,  he  is 
making  a  mistake,  and  is  not  unlikely  to  find  himself 
in  a-  good  deal  of  trouble  ere  long,  politically,  officially 
and  personally,  in  consequence." 

The  following  quotation,  approving  a  speech  made  by  an 
Insurance  Commissioner  of  another  State,  shows  that  the  fire 
companies  do  not  want  Insurance  Commissioners  to  favor 
investigations: 

"He  did  not  attempt  to  stir  up  any  new  species 
of  investigation  which  might  possibly  embarrass  some 
branches  of  the  insurance  business."  (Insurance  Ad- 
vocate, New  York,  September  26,  1914.) 

This  extract  from  the  Insurance  Post,  of  Chicago.  June  2, 
1914,  shows  clearl}'  the  desire  of  the  companies  that  all  knowl- 
edge of  evils  should  be  kept  secret : 

"In  April,  0.  B.  Ryon.  general  counsel  for  the 
National  Board  of  Fire  Underwriters,  addressing  the 
Fire  Insurance  Club  of  Chicago,  said  :  'Don't  take  your 
grievances  to  the  insurance  department  unless  they  are 
of  a  genera!  character.  Remember,  while  you  are  get- 
ting your  little  complaint  fixed  you  may  be  'fixing'  the 


3-1 

whole  fraternity.  Mr.  Ryon  usually  knows  what  he  is 
talking  about,  but  he  possibly  did  not  know  how  very 
appropriate  that  advice  was  just  at  the  moment.  About 
that  very  time  certain  Chicago  agents  were  asking  the 
Illinois  Department  to  correct  grievances  and  they 
seem  to  have  started  something  which  they  connot 
stop." 

Little  confidence  can  be  placed  in  the  articles  of  the  in- 
surance journals,  their  function  being  more  to  suppress  facts 
than  to  give  publicity  to  anj^  evils  in  the  business. 

The  attitude,  however,  of  the  general  press,  when  free 
from  insurance  influence,  is  just  the  contrary.  This  is  well 
shown  by  the  following  editorial  from  the  Illinois  State 
Register  of  July  27,  1914,  which,  in  the  course  of  the  discussion 
of  a  particular  incident,  states  clearly  the  improper  control 
over  the  insurance  press  by  the  companies: 

NEWSPAPER  AND  TRADE  JOURNALS. 

The  relative  value  of  insurance  trade  journals  and 
the  daily  papers  as  a  medium  of  conveying  news  to  the 
public  is  strikingly  shown  by  a  comparison  of  the  edi- 
torial comments  of  a  foremost  representative  of  each 
class  on  the  report  of  Insurance  Superintendent  Rufus 
M.  Potts,  covering  his  investigation  of  the  stock  and 
bond  holdings  of  eastern  fire  insurance  companies  in 
the  New^  Haven  railroad.  The  report  showed  that  these 
companies  hold  over  $7,000,000  in  this  worthless  paper. 

The  Chicago  Herald  commends  Mr.  Potts,  and 
points  out  that  the  public  is  vitally  interested  in  such 
matters  and  should  be  kept  informed.  The  sentiment 
of  the  editorial  is  expressed  in  the  following: 

"And  now  comes  this  statement  from  the  state's 
commissioner  of  insurance  to  show^  that  this  situation 
which  we  have  been  regarding  with  calmness,  as  alien 
to  our  interests,  affects  to  a  certain  extent  everybody 
who  takes  out  a  fire  insurance  policy  in  Illinois. ' ' 

On  the  other  hand,  the  Insurance  Field  of  Louis- 
ville, Ky.,  a  leading  insurance  journal,  severely  criti- 
cises Judge  Potts  for  making  such  a  discovery  public, 
the  editorial  declaring  that : 

"The  companies  holding  these  securities  are  prob- 
ably as  a  rule  able  to  charge  off  their  losses.  *  *  * 
There  are  insurance  authorities  much  nearer  than 
Judge  Potts  to  the  insurance  companies  and  their 
railway  investments  who  can  be  depended  upon  to 
give  the  most  conscientious 'attention  to  the  financial 
affairs  of  the  companies  as  they  may  affect  the  public. 
*  *  *  If  there  is  any  particular  company  endangered 
by  too  much  New  Haven  diet,  Judge  Potts  might  take 
quiet  steps,  but  to  attempt  to  'bawl  out'  fortv-three 


1 


35 

biu:  companies  on  a  blanket  criticism  that  probably 
will  not  vitally  affect  any  of  them  is  a  grave  error." 

This  contrast  simply  reflects  the  fact  that  articles 
in  insurance  journals  are  not  news  items,  but  are  pub- 
lished for  the  sole  jnirpose  of  protect  in  «r  the  trade,  and 
the  public  dealinir  with  these  interests  cannot  with 
safety  rely  upon  such  orii:ans.  The  coveriujc:  up  of  this 
discovery  would  prol)ably  have  brou,u:ht  fulsome  praise 
from  this  very  journal  for  the  insurance  superintend- 
ent, and  the  insurin*;:  public  of  the  State  of  Illinois 
would  have  been  none  the  wiser.  However,  durinjx  his 
administration  in  the  insurance  department.  Superin- 
tendent Potts  has  taken  the  stand  that  where  a  com- 
pany or  class  of  companies  violate  the  law,  refuse  to 
conduct  their  business  leijitimately,  or  endangrer  the 
safety  of  their  policyholders  tiirough  rpiestionable 
speculations,  the  public  is  entitled  to  have  all  available 
inforamtion  as  their  protection  against  further  victim- 
izing. 

Under  all  theories  of  insurance,  the  money  in- 
vested by  the  companies  in  New  Haven  stock  does  not 
belong  to  the  companies;  it  is  the  accumulation  of  the 
premiums  of  the  policyholders  set  aside  and  held  in 
trust  to  pay  their  future  losses,  and  when  it  is  wasted 
and  devastated  the  trade  journals  declare  that  the 
facts  should  not  be  made  public.  It  is  difficult  to  see 
what  this  insurance  journal  has  in  mind  when  it  insists 
that  such  discoveries  as  made  public  by  the  Illinois 
Department,  which  everybody  must  admit  is  of  vital 
importance  to  every  policyholder  for  whose  protection 
it  exists,  should  be  kept  secret. 

The  Insurance  Field  charges  that  such  actions 
cannot  help  Judge  Potts  in  his  clean-up  campaign, 
"but  only  help  to  cast  suspicion  on  the  business."  It 
would  seem  far  better  for  such  a  paper  to  lend  its 
suppoi-t  and  editorial  energies  to  a  movent. -nt  which 
will  clean  up  the  business  and  raise  its  plane  to  a 
point  wiicri"  it  need  I'lar  ncitlvr  adverse  puMii-ily  lun' 
investigation. 

CHARGE  OF     POLITICS.' 

It  is  iilwjiys  maintained  by  the  conii»;inies,  willi  liypo- 
critieal  assumption  of  martyrdom  on  their  part,  that  they  must 
ever  bear  the  brunt  of  attack  from  self-seeking  public  oflicials. 
They  express  in  pathetic  terms  a  yearning  to  prot'ct  the  I'cople 
from  loss  by  fire,  but  claim  that  the  foolisimess  of  some  public 
servants  is  liable  to  deprive  the  people  of  this  great  charit}'. 
It  may  be  true  that  politicians  have  in  the  past  secured  lucrative 
livings  for  some  men  at  the  expense  of  the  companies,  but  this 
is  because  the  companies  fully  realize  that  on  account  of  their 


36 

violations  of  law  they  are  at  all  times  open  to  successful  attack. 
Open,  vigorous  prosecutions  in  courts  of  law  are  not  methods 
adopted  by  the  beneficiaries  of  monopolies'  corrupt  generosity. 

I  am  not  restraining  insurance,  but  restraining  monopoly; 
I  am  not  fighting  stock  fire  insurance  companies,  but  am  pre- 
serving the  rights  of  the  people  of  the  State  of  Illinois ;  I  am 
not  stifling  business,  but  am  trying  to  preserve  an  open  market 
in  the  fire  insurance  business  in  this  State,  as  President  Wilson 
is  doing  in  other  lines  of  industry  in  the  nation.  In  bringing  the 
anti-trust  suits,  my  aim  is  to  make  insurance  an  open  and 
competitive  field,  and  to  effectually  prevent,  for  all  time,  the 
creation  and  maintenance  of  such  insurance  trusts  or  combines 
as  exist  today.  These  companies  do  not  undertake  to  offer  any 
legal  substitute  for  the  evil  practices  that  now  exist ;  they  will 
not  willingly  permit  others  to  correct  these  evils. 

The  truth  is  that  the  all-powerfu].  fire  insurance  trust  has 
been  in  control  so  long,  their  fortifications  are  so  well  estab- 
lished through  the  insurance  press,  that  they  feel  they  can 
resist  the  demands  for  reform  by  all  State  governments,  and 
hence  will  make  no  concessions,  but  seek  immunity  on  the 
bluff  that  they  will  leave  the  State  in  case  we  seek  to  regulate 
or  control  them.  The  subjoined  are  recent  examples  of  such 
threats  repeatedly  made  following  the  efforts  of  this  depart- 
ment to  secure  relief. 

"Several  important  fire  insurance  companies  have 
announced  their  disposition  to  stop  writing  insurance 
in  Chicago  or  in  Illinois  if  the  Insurance  Department 
should  be  able  to  enforce  its  demands  for  a  reduction 
in  rates."  (The  Insurance  Press,  September  8, 
1914,  p.  7.) 

"It  is  almost  unbelievable  that  the  courts  of  Illi- 
nois will  approve  the  attitude  of  Potts ;  but,  in  the 
event  that  they  do,  we   should  expect  to   see    with- 
drawals of  self-respecting  companies  from  the  State." 
(The  Surveyor,  September  11,  1914,  p.  27.) 
Even  if  the  "Combine"  companies  should  put  these  ar- 
rogant threats  into  execution,  and  by  concerted  action  quit 
Illinois,   while  it  might  cause  some  temporary  inconvenience, 
it  would,  in  my  opinion,  ultimately  benefit  Illinois  property 
owners.    It  would  afford  an  opportunity  to  at  once  create  and 
put  into  operation  a  system  of  State  fire  insurance.    This  might 
be  a  somewhat  difficult  task  if  the  insurance  companies  were 
fully  occupying  the  field,  but  if  the  "Combine"  companfes,  by 
concerted  action,  abandon  the  State  for  the  purpose  of  coercing 
the  State  government  into  permitting  the  anti-monopoly  stat- 


37 

utes  and  common  law  of  the  State  to  be  contemptuously 
violated,  these  obstacles  will  no  longer  exist  and  S>tate  fire 
insurance  can  be  easily  and  advantageously  put  into  successful 
operation.  In  this  connection,  I  believe  a  brief  presentation 
of  the  advantages  of  State  fire  insurance  will  be  of  interest. 

STATE  INSURANCE. 

In  the  first  place,  State  lire  insui-aiice  will  afford  infinitely 
better  security  to  property  owners  than  all  of  the  "Combine" 
companies  and  their  assets,  even  if  all  Avere  united  in  one 
gigantic  insurance  corporation.  Eciually  important,  the  fire 
premiums  could  be  reduced  to  one-half  of  the  present  "Cora- 
bine"  rates  or  less.  The  claim  is  not  extravagant.  As  shown 
above,  the  rates  under  State  insurance  in  European  countries 
are  only  one-ninth  of  the  rates  here.  While  we  would  not  hope 
to  be  able  to  make  such  low  rates  immediately,  they  would  be 
approximated  in  a  reasonable  time,  and  great  immediate  re- 
ductions would  be  possible.  In  my  judgment,  one-half  of  the 
present  charge  would  be  an  adequate  rate  under  State  fire 
insurance  because,  in  round  numbers,  only  one-half  of  the 
premiums  collected  is  claimed  by  the  fire  insurance  companies 
to  be  actually  paid  for  losses;  the  remainder,  they  say,  is  all 
used  for  profits  and  expenses.  As  we  have  seen,  all  authorities 
who  have  written  on  the  theory  of  fire  insurance  agree  that 
such  insurance  is,  in  essence,  a  tax  by  which  the  fire  losses  are 
distributed  throughout  the  whole  of  the  community,  instead 
of  falling  wholly  upon  the  unfortunate  individual  whose 
property  is  burned. 

Now,  it  is  exorbitant  to  absorb  50  per  cent  of  a  tax  in  its 
collection  and  disbursement.  Under  European  State  insurance 
less  than  15  per  cent  is  required  for  expenses,  and  no  profit 
whatever  is  made.  With  the  expense  reduced  to  less  than 
15  per  cent,  instead  of  50  per  cent,  the  cost  of  insurance  to  the 
property  owner  would  be  cut  down  nearly  one-half.  The  re- 
mainder can  be  rapidly  reduced  by  preventing  over-insurance, 
by  compelling  the  repair  and  improvement  of  "fire  traps"  and 
"fire  breeders,"  and  by  tlif  stringent  prosecution  of  the  too 
frequent  crime  of  arson. 

That  such  a  reduction  is  not  an  idle  dream,  but  can  be 
made  an  immediate  reality  if  proper  measures  are  taken,  is 
proven  by  the  recent  extraordinary  reduction  of  fire  loss  as 
shown  by  the  ratio  of  loss  to  insurance  in  New  York  City.  The 
reduction  from  the  year  1912  to  1913  is  exhibited  bv  the  follow- 


38 

ing  tabular  statement  taken  from  the  Spectator's  "Year  Book," 
1914,  page  505,  which  shows  the  number  of  dollars  loss  for 
each  one  hundred  dollars  of  insurance  in  force  on  buildings 
and  contents  in  which  fires  started: 

Insurance  Loss     *  Loss 

Year  In  Force  Buildings  Contents 

1912  $100  $1.48  $17.77 

1913  100  1.00  8.93 

The  amounts  of  insurance  premiums  are  not  given,  so  that 
the  decrease  cannot  be  shown  in  the  form  of  percentage  loss 
ratios  as  usually  done  elsewhere  in  this  report,  but  this  method 
gives  a  comparison  for  the  different  years  of  the  proportion  of 
losses  to  insurance  similar  to  that  afforded  by.  percentage  loss 
ratios. 

This  shows  that  in  one  year  the  fire  loss  on  buildings  was 
reduced  to  two-thirds,  and  on  contents  to  one-half  of  what 
it  had  been  the  year  before.  This  is  an  enormous  difference, 
which  means  a  decrease  of  millions  of  dollars  in  fire  loss  in  the 
metropolis  alone.  No  such  sudden  drop  in  the  fire  loss  ratio 
ever  occurred  before.  It  did  not  happen  at  this  time  without 
cause.  When  the  course  of  the  fire  insurance  business  in  New 
York  City  for  these  years  is  investigated,  it  is  not  difficult  to 
see  what  the  main  cause  was  which  brought  about  this  extra- 
ordinary and  desirable  reduction.  Doubtless,  part  of  the  im- 
provement w^as  on  account  of  improved  building  construction, 
better  fire  protection,  installation  of  automatic  sprinkler  equip- 
ments and  the  installation  of  a  high  pressure  water  system. 
But  these  factors  had  been  in  operation  for  several  years  and 
only  account  for  a  general  decline,  and  not  for  the  sudden 
tremendous  drop. 

It  wnll  be  remembered  that,  in  1912,  there  was  a  great  up- 
heaval in  fire  insurance  circles  in  New  York  City  and  an  ex- 
posure of  the  so-called  "Arson  Trust."  The  operations  of  the 
latter  were  made  possible  by  collusion  between  corrupt  local 
insurance  agents  and  incendiary  property  owners.  This  be- 
came so  notorious  that  insurance  could  be  obtained  for  several 
hundred  dollars  on  furniture,  etc.,  in  the  tenement  district,  the 
actual  value  of  which  was  only  a  few  dollars.  Of  course 
fires  happened  and  the  corrupt  agents  paid  the  losses,  receiving 
their  "rake  off."  The  same  thing  happened  in  relation  to 
stocks  of  merchandise  of  all  sizes.  This  condition  became  so 
bad  that  exposure  followed,  and  these  evils  were  largely  cor- 
rected.    This,  in  my  judgment,  is  the  explanation  of  this  sud- 


39 

den  drop.  I  wrote  the  "Combine"  officials  as  to  what  interpre- 
tation they  placed  upon  it,  but  they  professed  ignorance  and 
proceeded  to  cast  doubt  upon  the  reliability  of  the  figures 
given  in  the  Spectator  "Year  Book,"  but  would  not  furnish 
any  others.  In  view  of  what  I  have  heretofore  stated,  this  is 
what  might  be  expected  of  the  "Combine."  Although  con- 
ditions in  Illinois  cities  are  not  as  bad  as  they  were  in  New 
York  in  1912,  still,  if  arson  was  entirely  eliminated,  a  similar, 
but  smaller,  drop  would  occur  in  the  fire  loss  ratio  of  Chicago 
and  other  cities. 

A  similar  sudden  reduction  took  place  in  Texas,  co- 
incident with  a  change  in  Texas  laws,  which  went  into  opera- 
tion in  1913,  and  provided  that  rates  be  made  by  a  State  Com- 
mission and  established  other  insurance  reforms,  such  as  proper 
credit  for  fire  prevention  devices.  The  Texas  fire  loss  ratio 
in  1912  was  .85.8' c,  in  1913,  55.7%,  a  reduction  in  one  year  of 
30.1%.  (Insurance  Age,  Sept.,  1914,  p.  203).  No  other  re- 
duction of  like  magnitude  has  occurred  since  the  amount  of 
insurance  in  that  State  became  large  enough  to  afford  reliable 
averages. 

The  companies  are  wholly  dependent  for  business  on  their 
numerous  local  agents.  These  receive  a  percentage  commission 
on  the  premiums,  so  it  is  to  the  local  agent's  advantage  to 
asquiesce  in  over-insurance,  and  see  that  every  applicant  is 
allowed  insurance,  whether  his  property  is  a  fire  trap  or  not. 
It  is  probable  that  many  honest  insurance  agents  do  not  allow 
these  interests  to  control,  but  they  exert  steady  pressure 
toward  reckless  insurance  and  high  fire  losses  with  consequent 
high  premium  rates,  and  in  the  aggregate  have  tremendous 
influence.  The  truth  is,  that  instead  of  fires  being  diminished 
by  insurance,  they  have  been  greatly  increased,  and,  so  long 
as  the  companies  are  able  to  collect  rates  which  will  pay  all 
losses  and  a  good  profit,  they  are  content.  In  fact,  occasionally 
an  insurance  company  officer  has  been  found  frank  enough  to 
admit  that  it  was  desirable  that  the  fire  loss  was  large,  instead 
of  small,  provided  they  can  fix  the  rates  high  enough  to  pay 
the  losses,  because  they  and  their  agents  will  get  their  per- 
centage of  profit  and  commission  on  a  large,  instead  of  small, 
premium. 

For  instance,  the  general  manager  of  the  Scottish  Union 
and  National  Insurance  Company,  of  Edinburgh,  says: 

"Were  there  no  fires  there  would  be  no  insurance 
business;  and,  on  the  other  h.iiul,  the  greater  tli<«  fire 


40 

damage,  the  greater  the  turnover  out  of  which  insur- 
ance companies  make  profit  .  *  *  *  Speaking  to- 
night as  manager  of  a  fire  insurance  company,  I  say 
we  cannot  make  profits  for  our  shareholders  without 
fires,  and,  further,  that  Avithin  certain  well-defined 
limits  we  welcome  fires."  (Quoted  in  Collier's,  Feb- 
ruary 22,  1913.) 

Edwin  Milligan,  vice-president  of  the  Phoenix,  of  Hartford, 
in  his  testimony  before  the  Illinois  Insurance  Commission,  says : 
"Speaking  for  the  company,  for  the  fire  insurance 
companies,  I  should  say  that  the  reduction  of  the  fire 
waste  would  not  be  a  profitable  thing.  I  think,  Mr. 
Chairman,  that  as  a  business  fire  insurance  is  conducted 
by  companies — like  the  one  I  represent — with  most 
satisfaction  and  with  larger  profits  in  the  years  when 
fires  are  plenty ;  a  good  number  of  fires  means  a  good 
premium  account." 

Henry  Evans,  president  of  the  Continental  of  New  York, 
testifying  before  the  New  York  Insurance  Commission  (1910, 
p.  2890),  says: 

"I  don't  care  anything  about  a  $2,500,000  or  a 
$3,000,000  fire.  Just  as  soon  have  it  as  not.  It  would 
put  so  much  business  on  my  books,  and  put  rates  so 
high  I  would  make  it  up." 

A  striking  example  explaining  how  insurance  companies 
gain  instead  of  lose  by  conflagrations,  and  why  Mr.  Henry 
Evans  and  other  insurance  presidents  do  not  dread  them,  is 
given  in  a  speech  made  by  Colonel  Edwin  Romberg,  of  Chicago, 
before  the  Chicago  Real  Estate  Board  on  November  5,  1914. 
He  says: 

"I  had  a  peculiar  experience  last  June  here  in 
Chicago,  myself.  My  secretary  called  my  attention  to 
an  insurance  policy  expiring  on  a  factory  building, 
owned  by  me,  situate  on  Root  street,  near  Halsted. 
As  usual,  I  requested  to  know  the  amount  of  the  insur- 
ance that  we  have,  and  told  him  that  we  would  have 
to  renew  the  policy  and  wanted  to  know  the  rate.  He 
told  me  the  rate  would  be  a  certain  figure,  plus  10%. 
When  I  asked  what  this  10%  was  for,  he  did  not  know, 
,  so  I  had  him  call  up  the  Board  of  Underwriters  to  find 
out ;  and  this  is  the  information  he  received :  That  the 
extra  charge  of  10%  was  added  to  all  mercantile 
risks  in  1902,  after  the  Baltimore  fire ;  that  the  Under- 
writers of  Cook  county  then  decided  upon  a  general 
increase  of  rate  on  all  ordinary  or  special  risks  of  10% 
on  buildings  and  25%  on  contents,  but  that  this  rate 
would  be  eliminated  by  the  Dean  Schedule  as  soon  as 
the  district  could  be  brought  under  that  Schedule, 
which  will  be  in  about  a  year's  time.    In  other  words. 


41 

^'entlonicn,  you  have  been  raised  lOS'  on  building  and 
25' t  on  contents  on  an  immense  amount  ui'  insurance 
on  account  of  the  Baltimore  fire  which  took  place 
twelve  years  ago,  and  tliey  have  never  taken  off  this 
increase  fnuu  the  rates,  and  I  dare  say  tliat  you,  as 
well  as  the  rest  of  the  People  in  this  City,  are  not  even 
aware  of  it." 

This  same  spirit  appears  to  control  in  the  insurance  busi- 
ness everywhere,  although  it  is  concealed  as  far  as  possible, 
and  only  becomes  visible  by  reason  of  some  special  investiga- 
tion or  agitation.  There  has  been  much  agitation  in  Kentucky, 
and  the  Chairman  of  the  Kentucky  State  Insurance  Board 
(Statement,  etc.,  April  29,  1914)  says: 

"A  very  prolific  cau.se  of  losses  incurred  in  this 
State,  as  admitted  by  the  companies,  is  due  to  over- 
insurance.  To  correct  this  evil,  so  far  as  possible,  the 
State  Insurance  Board  was  -given  the  right  to  inquire 
into  the  question  of  insurance  upon  property  as  to  its 
value,  thus,  insofar  as  possible  preventing  fraud 
lo.sses.  The  companies,  however,  because  of  their  antip- 
athy to  State  regulation,  seriously  objected  to  this, 
as  well  as  all  otlu^r  provisions  of  the  law.  They  seem- 
ingly little  care  how  great  their  losses  may  be  so  long 
as  State  supervision  is  prevented  and  the  making  of 
rates  charged  for  insurance  left  entirely  in  their 
hands." 
In   the  series  of  articles   in   Collier's  "Weekly,   beginning 

February  8,  1913,  satisfactory  proof  was  given  to  support  the 

following  statement  made  therein : 

"At  the  very  lowest  estimate  incendiarism,  either 
active  or  passive,  is  responsible  for  one-half  of  our 
fire  loss  •  •  •  •  When  we  calculate  everything  that 
our  fires  cost  us,  we  may  set  our  arson  loss  at  one- 
quarter  billion  dollars  a  year.  No  lower  estimate  is 
possible." 
The  New  York  In.surance    Commission    report    (1910,  p. 

119)  says: 

"Against  that  we  have  a  certainty  that  the  fire 
loss  could  be  at  least  cut  in  two;  that  there  could  be 
not  only  a  saving  of  one  hundred  million  dollars  a 
year  in  property  now  destroyed,  but  nearly  as  much 
more  insurance  expense,  certainly  hundreds,  perhaps 
thousands  of  lives  saved  and  a  world  of  worry  and 
suffering." 

Commissioner  Lewis,  of  Kansas,  at  the  National  Conven- 
tion of  Insurance  Commi.ssioners  (proceedings,  1910,  p.  68) 
says : 

"The  question  of  over-insurance  is  a  subject  that 


42 

should  receive  the  attention  of  this  convention  as 
much  as  any  other  thing  that  we  have  before  us  for 
consideration,  in  my  opinion.  I  believe  that  if  we 
could  eliminate  over-insurance  that  the  rates  in  Kan- 
sas could  be  reduced  50  per  cent,  in  my  honest  judg- 
ment. ' ' 

This  incendiarism  can  be  eliminated  almost  entirely  under 
a  system  of  State  insurance.  Much  good  is  now  being  done 
by  the  Illinois  Fire  Marshal,  but  present  conditions  prevent 
the  full  accomplishment  of  the  purpose  of  that  department. 
However,  with  State  insurance,  officials  deal  directly  with,  for 
and  in  behalf  of  the  State,  rather  than  with  an  insurance  trust 
controlling  the  insurance  business  in  Illinois. 

The  Hon.  James  R.  Young,  president  of  the  National  Con- 
vention of  Insurance  Commissioners,  in  his  address  at  the 
annual  meeting  at  Asheville,  North  Carolina,  September  15, 
1914,  said: 

''Although  the  strenuous  efforts  to  reduce  the 
immense  fire  waste  in  this  country  is  being  continually 
and  intelligently  increased,  the  great  loss  of  life  and 
property  grows  unabated.  It  is  nothing  less  than  a 
crime  and  a  reproach  to  us  as  a  civilized  nation." 

"UNDERWRITERS  LABORATORIES." 

But  some  insurance  advocate  will  say :  ' '  Does  not  the 
"Combine"  maintain  in  Chicago  an  extensive  underwriters 
laboratory  for  the  purpose  of  testing  fire  preventing  devices, 
etc.?"  This  may  be  true  and  still  little  benefit  accrue  to  the 
public.  Different  motives  control  the  different  sub-divisions 
of  the  great  fire  insurance  companies.  Subordinate  depart- 
ments may  be  attempting  to  disseminate  information  to 
diminish  fire  losses  while  the  men  "higher  up"  are  either 
wholly  indifferent  or,  when  their  real  sentiments  can  be  ob- 
tained, openly  hostile. 

An  objectionable  phase  of  the  operation  of  the  "Under- 
writers Laboratories"  has  lately  been  called  to  my  attention. 
The  insurance  interests  have  procured  the  making  of  require- 
ments in  some  Illinois  cities  that  the  material  in  electrical  in- 
stallations and  certain  other  appliances  must  be  approved  by 
the  "Underwriters  Laboratories."  These  laboratories  charge 
a  fee  of  from  a  minimum  of  fifty  dollars  up  to  hundreds  for 
testing  materials  and  devices  which  tends  to  prevent  competi- 
tion therein.  By  this  means,  some  very  clever  monopolies  have 
been  built  up. 


43 
DISTRIBUTION  OF  RISKS. 

All  importaut  feature  of  safety  in  the  lire  insurance  busi- 
ness is  what  is  technically  called  a  distribution  of  risks,  that  is, 
that  insurance  should  cover  a  great  number  of  risks  so  that 
there  will  be  some  approximation  to  uniformity  in  the  number 
of  fires  that  occur  within  a  year.  In  the  first  place,  the  neces- 
sity for  distribution  would  be  much  less  important  to  State 
insurance  than  to  corporation  insurance,  because  the  credit  of 
the  State  is  more  able  to  stand  sudden  demands  made  upon  it 
by  irregular  distribution  of  fire  losses.  The  State  of  Illinois, 
however,  is  so  large,  the  number  of  separate  properties  insured 
is  so  great,  that  State  insurance  covering  all  properties  in  Illi- 
nois would  give  a  much  better  distribution  of  risks  than  is  at- 
tained at  the  present  time  by  the  largest  fire  insurance  com- 
panies, so  that  there  could  be  no  valid  objection  in  Illinois  to 
State  fire  insurance  on  account  of  lack  of  sufficient  distribu- 
tion. The  companies  have  a  distribution  of  territory  rather 
than  of  risks,  and  it  is  the  distribution  of  risks  that  counts. 

CONFLAGRATION  HAZARD. 
The  opponents  of  State  fire  insurance  reserve,  for  their 
final  argument,  the  "conflagration  hazard."  There  is  no  ques- 
tion that,  in  the  past,  several  large  conflagrations  have  occurred 
in  the  United  States,  one  being  in  the  City  of  Chicago  in  1871. 
But  the  po.ssibility  of  conflagrations  is  no  barrier  to  State  fire 
insurance  in  Illinois.  Another  Chicago  conflagration,  such  as 
that  of  1871,  is  an  impossibility,  and  the  continuous  parading 
of  this  argument  by  the  insurance  "Combine"  shows  the  weak- 
ness of  their  position.  At  the  time  of  that  fire,  a  great  ma- 
jority of  the  buildings  were  of  wooden  con.struction  in  con- 
gested areas:  17,430  such  buildings  being  burned.  The  fire 
department  and  its  equipment  were  insignificant  compared 
with  the  .splendid  equipment  and  efficient  service  of  the 
present  fire  department.  Fires  will  occur,  but  they  cannot 
spread  among  brick  and  stone  buildings  of  modern  construc- 
tion with  modern  fire  protection.  This  is  proven  by  the  fact 
that  fires  are  in  most  cases  being  confined  to  the  buildings  in 
which  they  originate,  and  always  to  a  very  small  area.  As  fire- 
proof buildings  have  multiplied  and  the  efficiency  of  fire  fight- 
ing devices  and  equipment  increases,  the  conflagration  danger 
has  become  negligible.  A  conflagration  occurring  43  years  ago 
is  heralded  by  the  insuranee  trust  as  a  horror  to  be  expected  to- 
morrow, although  every  day  in  the  City  of  Chicago  fires  occur 


44 

which  might  have  proven  disastrous  years  ago  which  are  now 
easily  controlled  and  soon  extinguished.  This  fact  is  cer- 
tainly proof  of  the  ability  of  modern  cities  to  prevent  serious 
conflagrations.  The  conflagration  hazards  arise  out  of  con- 
ditions which  no  longer  exist  in  modern  cities.  The  New  York 
Insurance  Report  (1910,  p.  121)  says: 

"The  conflagration  hazard  in  New  York  City  is 
mostly  due  to  the  thousands  of  old  buildings  built  in 
the  days  when  neither  steam  or  electricity  or  gas  were 
important  features  of  the  hazard.  They  are  not 
adapted  to  modern  conditions." 

The  loss  of  property  covered  by  insurance  in  the  Chicago 
fire  was  $91,000,000.  The  companies,  however,  only  paid  about 
$25,000,000,  so  the  argument  of  "business  safety"  in  case  of 
conflagration  is  not  well  served  by  the  example  of  the  Chicago 
fire.  However,  conservative  business  judgment  may  require 
that  provision  be  made  to  meet  any  possible  conflagration 
hazard.  This  can  be  done  as  well  by  the  State  with  the 
People's  money  as  it  can  be  done  by  the  companies  with  the 
People's  money.  A  small  percentage  set  aside  out  of  the 
premiums,  the  savings  of  a  few  years,  will  create  a  conflagra- 
tion fund  sufficient  to  meet  any  emergency.  The  San  Francisco 
"conflagration"  is  frequently  dwelt  upon  by  the  insurance 
press.  This  originated  in  an  earthquake  in  which  the  upheaval 
alone  destroyed  much  of  the  property,  and  the  loss  by  fire  was 
secondary.  The  defenders  of  the  present  "Combine"  system 
cannot  claim  that  Illinois  is  located  in  an  earthquake  zone  in 
order  to  apply  this  disaster  to  Illinois  conditions. 

STANDARDIZATION. 

The  business  of  fire  insurance  must  be  standardized  by 
creating  a  system  w^hich  will  reduce  both  expense  of  adminis- 
tration of  the  fire  tax  to  the  lowest  possible  figure  and  also  act 
as  a  preventive  instead  of  an  encouragement  to  fires,  and  in 
this  way  produce  the  greatest  benefit  to  the  greatest  number 
at  the  least  expense.  This  cannot  be  accomplished  with  the 
business  in  charge  of  private  corporations,  whose  sole  aim  is 
profit  for  the  stock  holders.  The  system  by  which  they  must 
operate  is  cumbersome,  immensely  expensive  and  wasteful,^ 
and,  worst  of  all,  increases  instead  of  diminishes  fire  waste. 
Insurance  by  the  State,  if  properly  organized,  can  and  will 
bring  a  thorough  standardization  of  the  business.  Discrimina- 
tions will  cease  because  no  lower  rates  could  be  obtained  by 
"pull"  or  "influence";    with  a  prevention    of  overinsurance 


45 

autl  an  inquest  following  each  fire,  incendiarism  for  profit 
would  vanish.  Building  and  other  regulations  for  the  pre- 
vention of  fire  could  be  enacted  and  enforced  and  with  other 
reforms  the  full  purpose  of  distributing  the  ell'ects  of  lessened 
fire  losses  throughout  the  whole  community  could  be  accom- 
plished at  mininuink  expense. 

Fire  insurance  is  of  all  businesses  the  one  which  can  be 
taken  over  and  operated  by  the  State  without  inflicting  any 
injustice  on  capital  engaged  therein  or  creating  any  financial 
disturbance.  The  capital  of  the  insurance  companies  remains 
intact  and  can  be  taken  by  the  stock  holders  and  placed  with- 
out loss  in  other  enterprises.  Stock  holders  will  also  have,  in 
addition,  immense  surpluses  which  many  times  exceed  their 
stock  investments  to  be  divided  among  them.  The  insurance 
companies  have  absolutely  no  fixed  investment,  the  value  of 
which  will  be  destroyed  if  the  State  takes  over  their  business, 
such  as  would  happen  in  other  lines  of  industry.  Their  only 
property  which  would  be  rendered  useless  is  stationery,  the 
value  of  which  is  insignificant.  The  only  persons  whose  in- 
terest would  possibly  be  harmed  would  be  those  high  officials 
who  draw  salaries  larger  than  the  president  of  the  United 
States,  It  is  improbable  they  could  find  such  enormous  salaries 
in  any  other  business;  but  they  have  accumulated  such  for- 
tunes that  they  can  doubtless  continue  to  live  lives  of  luxury 
the  remainder  of  their  days,  even  if  they  do  not  see  fit  to  en- 
gage in  other  enterprises  at  moderate  salaries. 

It  would  be  wrong  to  say  that  the  People  did  not  have  the 
right  to  protect  themseles  from  extortion  by  carrying  on 
the  insurance  business  themselves,  even  if  it  did  destroy  the 
value  of  property  emploj'ed  by  private  corporations  in  this 
business,  but  fortunately  even  this  does  not  occur  and  all  the 
capital  and  immen.se  surplus  will  be  returned  intact  to  the 
insurance  companies'  stock  holders. 

CONSTITUTIONALITY. 

The  objection  may  ho  made  that  State  fire  insurance 
would  be  unconstitutional  but  an  examination  of  the  decisions 
of  the  higher  courts  of  the  State  of  Illinois,  and  of  the  other 
states  in  the  United  States,  fails  to  disclose  any  decision  in 
which  the  question  of  the  constitutionality  of  a  system  of  State 
fire  insurance  has  ever  been  raised. 

The  general  rules  as  to  the  powers  of  the  State  are 
laid  down  as  follows:  (Harris  vs.  Board  of  Supervisors,  105 
111..  445,  450) 


46 

"The  question  of  legislative  power  and  its  extent 
depends  on  the  limitations  contained  in  the  Constitu- 
tion. "When  a  state  is  created,  it  is  invested  with 
complete  sovereign  power;,  unless  restricted  by  consti- 
tutional limitation,  and  under  our  system  of  govern- 
ment such  restrictions  are  written  and  embodied  in  or- 
ganic law.  "Were  it  not  for  these  limitations,  the  legisla- 
tive power  would  be  without  restriction.  When  we 
have  to  determine  whether  an  Act  is  within  the  scope 
of  legislative  power,  we  do  not  look  for  an  express 
delegation  of  the  power  in  the  fundamental  law,  but 
we  look  to  see  whether  the  general  power  has  been 
limited. ' ' 

The  same  principle  is  again  stated  in  People  vs.  McCul- 
lough,  254  111.,  9  (16). 

"The  legislature  may  pass  any  law  and  do  any 
legislative  act  not  prohibited  by  the  Constitution  of 
the  State  or  the  United  States." 

There  is  no  prohibition  in  the  constitution  of  the, United 
States  against  a  State  engaging  in  tire  insurance ;  therefore,  in 
determining  the  question  of  the  constitutionality  of  State  fire 
insurance,  it  is  only  necessary  to  examine  the  constitution  of 
the  State  of  Illinois,  (1)  To  see  whether  there  is  any  positive 
provision  in  regard  to  the  creation  of  State  fire  insurance,  and 
(2)  "Whether  there  is  any  prohibition  of  State  fire  insurance. 

An  examination  of  our  State  constitution  discloses  that 
there  is  no  provision  for  the  creation  of  a  State  fire  insurance 
system.  Neither  is  there  any  provision  prohibiting  a  system 
of  State  fire  insurance.  Therefore,  we  are  justified  in  the 
conclusion  that  a  system  of  State  fire  insurance,  created  by  our 
legislature,  would  be  constitutional,  because  the  general  power 
of  the  legislature  in  that  respect  has  not  been  limited  in  any 
way  whatever. 

This  conclusion  is  supported  by  a  number  of  facts.  In  the 
first  place,  under  the  present  constitution,  the  creation  of  a 
State  bank  is  expressly  prohibited;  also  the  rendering  of  aid 
or  granting  of  money  to  railroads,  or  similar  enterprises.  These 
prohibitions  were  necessary  because,  if  they  had  not  been  in- 
serted, the  State  would  have  had  power  to  engage  in  such 
enterprises,  Avhich  the  framers  of  the  Constitution  deemed 
undesirable,  and,  consequently,  found  it  necessary  to  insert  in 
the  constitution  these  express  prohibitions. 

Further  support,  which  would  seem  conclusive,  is  afforded 
by  the  fact  that,  although  there  is  no  express  provision  made 
in  the  Constitution  for  these  things,  J;he  State  has  legally  en- 


47 

gan:ed  in  many  enterprises,  of  a  nature  similar  to  fire  insurance, 
for  the  benefit  of  the  People  of  tiie  State.  For  instance,  it  eon- 
structed  the  Illinois  and  Michigan  Canal;  the  Illinois  Central 
Railroad,  (partly)  ;  it  appropriated  money  for  the  i)urchase 
and  maintenance  of  a  State  Park  at  Starved  Rock,  Illinois;  it 
appropriates  money  and  provides  an  organization  for  the  pur- 
pose of  conducting  a  State  Agricultural  Fair,  and  for  the  sup- 
port of  farmers'  institutes;  a  State  Geological  Survey;  a  State 
Natural  History  Museum;  a  State  Historical  Library;  a  State 
Library ;  for  the  improvement  of  the  Illinois  and  Desplaines 
River;  for  the  maintenance  of  a  Biological  Laboratory  for  the 
purpose  of  furnishing  free  hog  cholera  serum ;  and  maintains 
many  State  charitable  institutions.  All  these  things  and  insti- 
tutions are  for  the  benefit  of  the  People,  and  the  con.stitution- 
ality  of  their  creation  and  appropriation  of  money  for  their 
support  has  never  been  successfully  questioned.  In  People  vs. 
Canal  Trustees,  14  111.  402,  the  Supreme  Court  decides  that  the 
State  has  power  to  legally  appropriate  money  for  the  purpose 
of  building  bridges. 

A  system  of  State  fire  insurance  would  be  self-supporting. 
But,  even  if  it  should  require  an  appropriation  of  money  out 
of  the  State  Treasury  for  its  inauguration  or  for  its  mainten- 
ance, this  fact  would  not  render  it  unconstitutional,  and  there 
does  not  seem  to  be  any  reason  or  authority  to  believe  that  a 
system  of  State  fire  insurance  in  Illinois  would  be  unconstitu- 
tional. There  is  no  difference  in  principle  between  the  State 
engaging  in  fire  insurance  for  the  benefit  of  the  People  and  their 
protection  against  the  fire  insurance  monopoly,  and  the  State 
engaging  in  the  manufacture  and  furnishing  of  hog  cholera 
serum  for  the  benefit  of  stock-raisers,  or  maintaining  a  state 
fair  for  the  benefit  of  agriculture,  or  bridges  for  the  benefit  of 
travelers. 

A  system  of  State  tire  insuruiiee  could  he  very  conveniently 
and  economically  conducted,  together  with  a  system  of  State 
management  of  workmen's  compensation.  The  same  commis- 
sion could  have  charge  of  both.  The  management  of  th(^  work- 
men's compensation  by  the  State  is  a  reform  which  is  already 
in  operation  in  several  states  and  gives  the  injured  workman 
two  or  three  times  as  much  compensation  as  stock  company 
casualty  ins\irance  at  no  greater  cost  to  the  employer,  because 
the  casualty  companies  absorb,  in  expenses  and  profit,  one-half 
to  two-thirds  of  the  premiums  received  by  them.  It  is  very 
desirable   that    the   management   and    control    of    workmen's 


48 

compensation  in  Illinois  be  taken  over  by  the  State,  and  it  would 
add  to  the  economy  and  success  of  operations  to  have  them  be- 
gun at  the  same  time  and  carried  on  by  the  same  commission, 
and  each  would  benefit  similarly  the  parties  concerned  with 
each  of  these  burdens.  They  are  both  burdens,  from  accident 
and  misfortune,  and  should  be  made  as  light  as  possible. 
RAPID  SPREAD  OF  WORKMEN'S  COMPENSATION. 
It  will  be  remembered  that  until  about  five  years  ago  the 
working  people  of  every  State  in  the  Union  suffered  from  un- 
just liability  laws.  When  an  investigation  was  made  and  the 
operations  of  these  laws,  together  with  their  abuse  by  stock 
casualty  insurance  companies,  was  disclosed,  it  was  declared  to 
be  a  national  disgrace  and  workmen's  compensation  substituted. 
When  this  reform  was  urged,  the  stock  casualty  companies 
arose  in  holy  horror,  cried  paternalism,  and  urged  every  pos- 
sible objection  to  workmen's  compensation.  Within  a  period 
of  some  five  years,  however,  about  two-thirds  of  the  States 
adopted  workmen's  compensation  measures,  some  of  which  are 
administered  by  the  State.  Now  the  People  cannot  understand 
how  the  old  employers'  liability  system  was  tolerated  and  look 
upon  its  past  operation  as  a  blot  upon  the  industrial  history  of 
our  country.  We  are  approaching  the  same  reform  in  fire  in- 
surance. The  enactment  of  a  system  of  State  fire  insurance 
in  one  of  our  States  would  mean  that  this  system  would  be 
adopted  throughout  the  United  States  as  was  workmen's  com- 
pensation. Illinois  has  led  in  other  reforms,  and  there  is  no 
reason  why  it  should  not  lead  in  this  progressive  movement. 

MERCENARY  PERVERSION  OF  BENEFICENT  IDEA. 

Modern  fire  insurance  is  the  evolution  of  a  beneficent  idea. 
It  was  not  discovered  like  a  hidden  mine,  a  virgin  forest,  or  an 
unclaimed  prairie ;  hence,  the  fire  insurance  industry  belongs  to 
no  person,  set  of  persons  or  corporations,  and  none  possess  any 
vested  rights  or  territorial"  claims  upon  this  industry.  Fires  are 
misfortunes,  and  it  is  in  violation  of  all  ethics  and  rules  of  pub- 
lie  policy  that  institutions  should  not  only  profit  from,  but 
build  up  and  control  a  business  for  profit  only,  based  solely 
\ipon  the  misfortunes  of  our  People.  The  fire  insurance  busi- 
ness evolved  from  this  beneficent  idea  should  be  administered 
through  a  system  of  State  fire  insurance  without  profit  or 
emolument  of  any  kind  to  any  person  or  corporation. 

It  is  not  paternalistic  for  a  State  to  protect  its  citizens 
against  oppressive  and  excessive  burdens,  but  it  is  evidence  of 


49 

woaUiu'ss  if  a  State  fails  to  relieve  its  citizens  In  miiovin^  the 
underlyiiifj  caust's  from  which  oppression  and  excessive  burdens 
result.  That  our  citizens  are  bearing  an  excessive  burden  and 
are  sorely  oppressed  by  the  present  system  of  fire  insurance 
must  be  admitted  by  all.  Innnediate  and  eompleU'  relief  is 
imperatively  demanded,  and  State  fire  insurance  is  the  only 
medium  throuiyh  which  complete  relief  may  be  obtained. 

The  theory  of  State  fire  insurance  carries  with  it  absolutely 
no  basic  difficulties.  There  is  no  reason  why  the  State  of  Dli- 
nois  cannot  administer  a  system  of  State  fire  insurance  with  the 
People's  money  as  ablj',  eflieiently  and  ert'ectually  as  any  cor- 
poration or  number  of  corporations  may  likewise  do  with  the 
People's  money.  Thus  the  cry  of  paternalism  so  loudly  pro- 
claimed by  insurance  trade  journals  is  but  the  echo  of  the  wail 
of  the  wounded  corporations,  established  for  private  greed  and 
feeding  solely  upon  the  misfortunes  of  our  People.  It  is  not 
considered  paternalism  for  a  city  to  maintain  a  fire  department ; 
yet  the  maintenance  of  such  a  department  is  simply  a  form  of 
municipal  fire  insurance,  which  reduces  for  its  citizens  the  fire 
hazard.  There  is  no  valid  reason  why  this  principle  should  not 
be  extended  to  a  system  of  State  fire  insurance  which  could  be 
administered  with  the  burdens  equitably  distributed  among  the 
insuring  public,  and  thereby  the  whole  People  reap  the  full 
benofit  of  complete  protection  without  profit  or  tribute  to  any 
person  or  corporation. 

That  the  stock  fire  insurance  companies  will  voluntarily 
reform  is  beyond  the  dream  of  the  most  optimistic,  nor  can  they 
be  involuntarily  reformed.  These  corporations,  assembled  like 
a  hostile  fleet,  are  now  exerting  every  possible  effort  to  defend 
and  maintain  the  unrighteous  privileges  that  they  have  long  en- 
joyed. They  always  have,  and  do  now,  oppose  all  progressive 
and  constructive  methods  suggested  or  inaugurated  in  behalf 
of  the  insuring  public,  and  they  openly  threaten  to  dislodge 
any  State  or  government  official  who  seeks  to  bring  about  refor- 
mation of  their  business,  in  order  to  protect  the  State  and  the 
People  from  their  oppressive  practices.  They  are  now  gloating, 
drunk  with  the  pride  of  power,  over  the  recent  defeat  of  Com- 
mi.ssioner  Ekern's  policy  of  fire  insurance  reform  urged  by  him 
for  the  State  of  Wisconsin.  With  such  sordid  institutions  in- 
trenched as  they  are,  reformation  is  impossible. 

State  fire  insurance  would  mean  a  saving  to  the  People  of 
the  State  of  Illinois  of  approximately  fifteen  million  dollars  a 
year,  to  begin  with ;  this  sum  is  about  the  present  yearly  State 


50 

tax.  In  twenty  years  this  would  mean  a  saving  to  the  People 
of  our  State  of  more  than  three  hundred  million  dollars.  But 
the  actual  dollars  saved  would  not  alone  measure  the  benefits. 
Many  lives  would  also  be  saved  that  are  now  sacrificed  by  pre- 
ventable fires.  The  reserve  accumulated  from  insurance  prem- 
iums deposited  in  the  hands  of  either  the  State  Treasurer  or  a 
Commission  could  be  invested  under  the  strictest  statutory  safe- 
guards, and  in  such  a  manner  as  to  establish  a  favorable  market 
for  State  and  municipal  securities  and  for  real  estate  loans.* 

*NOTE:  On  April  3,  1914,  I  delivered  an  address  on  State  Insur- 
ance before  the  "Conference  on  Life  Insurance  and  Its  Educational  Re- 
lations" at  the  University  of  Illinois.  In  that  address,  I  did  not  include 
fire  insurance  in  the  list  of  insurance  branches  which  I  considered  should 
be  conducted  by  the  State,  yet  I  did  lay  down  a  general  principle  appli- 
cable to  all  insurance  in  the  following  language: 

"There    are    certain    economic    conditions    associated    with 

classes  of  individuals  or  lines  of  industry,  by  reason  of  which  the 

State   must   recognize   and   assume   a   special   responsibility   and 

grant  relief  through  the  administration  of  a  system  of  insurance. 

Under  such  conditions,   the    State   is   fully   warranted   in   taking 

over  the  business  of  insurance." 

Prior  to  the  making  of  that  address,  I  had  not  specifically  inquired 
into  fire  insurance  conditions  in  this  State.  My  investigation,  as  cov- 
ered by  this  report,  has  been  made  since  that  date,  and  I  am  now  con- 
vinced, beyond  all  doubt,  that  the  business  of  fire  insurance  comes  clear- 
ly within  the  general  principle  I  laid  down  in  that  address,  and  that  it 
should  have  been  included  in  the  list  of  insurance  branches  to  be  ad- 
ministered by  the  State.  I  now  confess  that,  prior  to  my  investigation, 
I  did  not  realize  and  had  but  little  idea  of  the  enormous  burdens  im- 
posed upon  the  People  of  my  State  through  the  operation  of  the  stock 
fire  insurance  "Combine." 

ALTERNATIVE— RATES  CONTROLLED  OR  MADE  BY 

STATE. 

If,  however,  for  any  reason  a  system  of  State  fire  insurance 
cannot  be  immediatel}^  put  in  operation  in  Illinois,  then  the 
protection  of  our  citizens  demands  that  rates  be  controlled  by 
the  State. 

The  recent  decision  of  the  United  States  Supreme  Court 
in  what  is  known  as  the  Kansas  rate  case  holding  that  the 
States  have  power  to  regulate  fire  insurance  rates  finally  dis- 
poses of  any  supposed  legal  difficulties. 

This  decision  contains  an  exhaustive  discussion  of  the 
whole  question  of  the  power  of  the  States  to  regulate  insurance 
rates.  In  it  the  Supreme  Court  replies  conclusively  to  the  ar- 
guments of  the  insurance  "Combine"  against  the  right  of  the 
State  to  regulate  insurance  rates.  This  decision  settles  the 
question  absolutely,  and  is  well  worth  careful  reading  by  every- 
one interested  in  the  subject  of  insurance,  so  I  attach  a  copy 
thereof  to  this  report,  as  an  appendix. 


51 

In  view  of  the  facts  and  conditions  which  I  liave  already 
described  it  appears  to  me  that  some  method  of  effectively 
regulating  insurance  rates  by  the  State  is  imperatively  neces- 
sary in  order  to  protect  the  citizens  of  Illinois.  On  account  of 
the  existence  of  the  "Combine"  there  is  no  such  thing  as  se- 
curing reasonable  rates  through  competition.  The  United 
States  Supreme  Court  decision,  which  I  mention  above,  is  con- 
clusive authority  for  the  right  of  the  State  to  regulate  insur- 
ance rates.  All  that  is  necessary  to  secure  relief  is  legislative 
action.  It  remains,  then,  to  be  considered  what  is  the  best 
method  and  means  of  regulating  insurance  rates.  I  believe  that 
it  should  be  done  by  an  insurance  commission  composed  of 
three  members.  If  such  a  commission  only  had  power  to  pass 
upon  the  rates  made  by  the  insurance  companies,  it  would  af- 
ford considerable  relief  and  be  a  distinct  advance  over  the 
present  condition  of  absolu''^  eorlrol  of  rates  by  the  "' Com- 
bine",  which  is  mitigaied  ov]\  iu  small  part  by  competition 
from  tiie  mutuals  and  inter-in.- iTi--.  I  believe,  however,  that 
it  would  be  still  better  for  this  commission  to  have  the  power 
to  themselves,  to  make  a  classification  of  all  the  property  in 
the  State  with  reference  to  fire  hazard ;  collect  statistics  of  fire 
losses  under  this  classification,  and,  upon  the  information  thus 
collected,  make  reasonable  maximum  rates  which  the  com- 
panies would  not  be  allowed  to  exceed.  This  commission  should 
have  wide  powers  in  relation  to  fire  insurance  rates,  similar 
to  the  powers  which  the  Utilities  Commission  has  over  the 
charges  which  public  utilities  are  allowed  to  make. 

Unless,  however,  such  a  commission  could  make  a  correct 
and  thorough  classification  of  property  and  then  accumulate 
statistics  of  fire  losses  in  these  various  classes,  they  would  have 
insufficient  means  for  determining  whether  or  not  any  rates 
tendered  by  the  companies  were  equitable  or  not.  The  com- 
panies have  no  power  to  require  these  statistics,  nor  would 
they  be  disinterested  parties  in  collecting  and  applying  the 
same;  therefore,  the  classification  and  collection  of  stati.stics  of 
fire  experience  can  only  be  done  by  a  State  Commission ;  but 
if  a  commission,  pnd  only  a  commission,  must  do  all  this,  then 
they  will  be  in  bolter  position  to  themselves  make  the  rates 
than  any  companies  or  'Combine"  of  companies. 

In  further  detail  the  plan  which  I  recommend  would  be 
something  substantially  as  follows: 

(1)  There  should  first  be  made  a  scientific  and  thorough 
classification  of  all  firo  risks  in  the  State  into  a  sufficient  num- 


52 

ber  of  divisions  so  tiat  all  risks  will  be  placed  in  classes  where 
the  hazards  will  be  substantially  equivalent. 

(2)  The  maximum  fire  insurance  rates  on  each  class 
should  be  fixed  by  a  commission  appointed  by  the  Governor,  of 
which  the  Insurance  Superintendent  would  be  a  member ;  these 
rates  to  be  based  upon  all  the  experience  available  as  to 
losses  in  the  different  classes  and  modified  from  time  to 
time,  as  further  accumulated  experience  might  indicate  just 
and  proper.  Allow  any  insurance  company  to  make  whatever 
minimum  rate  it  may  see  fit,  provided  that  all  such  rates  on 
the  same  classes  of  property  in  the  same  community  are  uni- 
form, and  that,  when  such  rates  are  once  made,  they  cannot 
be  raised  for  at  least  twelve  months.  The  latter  provision  is 
for  the  purpose  of  preventing  discrimination  by  allowing  every 
insurer  to  have  at  least  one  year's  benefit  of  any  lower  rate. 
It  would  also  prevent  temporary  rate-cutting  to  drive  other 
companies  out  of  business. 

(3)  Any  combination,  agreement,  pool  or  understanding 
by  and  between  fire  insurance  companies  for  the  purpose  of 
making  rates  should  be  absolutely  prohibited,  but,  during  the 
time  which  might  elapse  from  the  passage  of  such  a  law  until  a 
classification  was  worked  out  and  rates  established  by  a  com- 
mission, the  companies  should  be  allowed,  after  filing  schedules 
thereof,  to  collect  such  rates  as  such  insurance  commission 
might  deem  reasonable.  All  rates  during  the  interim  period 
should  be  under  the  control  of  the  commission  and  made  reason- 
able and  free  from  discrimination. 

The  plan  outlined  in  paragraphs  1  and  2  above  is  sub- 
stantially that  in  force  in  Texas,  from  which  very  good  benefits 
have  been  derived,  both  to  insurers  and,  strange  as  it  may 
seem,  to  the  companies  themselves.  The  companies  are  bene- 
fited because,  by  reason  of  the  law,  they  have  been  obliged 
to  select  better  agents,  and  these  have  rejected  bad  risks  and 
so  have  reduced  the  burning  ratio  immensely.  This  would 
never  have  been  done  under  the  previous  system.  A  similar 
benefit  will  accrue  in  Illinois. 

In  the  first  annual  report  of  the  Texas  Pire  Insurance 
Commission,  just  made  to  the  governor  of  that  state,  the 
absolute  control  by  the  State  of  fire  insurance  rates  is  de- 
clared to  be  "highly  successful"  and  "the  results  obtained 
have  shown  that  the  State  can  control  rate-making  and  fix 
reasonable  rates  in  a  manner  just  to  the  people  and  equitable 
to  the  insurance  companies." 


53 

The  State  rates  are  made  iu  Texas  at  the  expense  of  the 
insurance  companies,  which  are  assessed  1^/4%  of  their  gross 
Texas  premiums  for  this  purpose.  The  key  rate  system  is 
used,  in  which  "cities  and  towns  are  classified  scientifically 
according  to  general  construction,  width  of  streets  and  alleys, 
general  fire  hazard  and  municipal  protection."  This,  the  re- 
port says,  has  encouraged  cities  to  enact  ordinances  for  public 
safety,  and  to  improve  water-work  systems  and  fire  depart- 
ments. Also  fire  hazards  are  penalized  and  thus  the  public  is 
encouraged  to  eliminate  fire  dangers,  with  the  result  of  a 
nuirked  reduction  in  fire  loss  in  Texas.  Confidence  in  the  law, 
as  well  as  approval  of  its  economic  benefits,  is  shown  by  the 
fact  that  not  a  single  request  for  a  public  hearing  by  the  Com- 
mission has  been  made,  and  that  there  has  been  no  unified 
complaint  during  the  fourteen  months  of  its  existence. 

There  are  146  local  fire  marshals  in  Texas  who  work  in 
conjunction  with  the  State  fire  marshal.  It  is  said,  however, 
that  the  State  fire  marshal  needs  more  power  to  be  able  to 
effectually  enforce  the  law  and  obtain  more  convictions  for  the 
crime  of  arson. 

"Whatever  method  is  adopted  for  control  of  rates,  the 
companies  should  not  be  allowed  to  combine  for  the  purpose 
of  fixing  and  maintaining  rates,  even  under  regulation.  Such 
a  "Combine"  is  contrary  to  the  statutes  and  the  common  law 
of  the  State  of  Illinois,  and  it  would  be  an  evil  example  to 
allow  the  insurance  companies,  whose  business  is  the  most 
profitable  of  all,  to  continue  the  "Combine"  under  any  form 
or  pretext  whatever,  even  if  there  was  absolute  control  by  a 
commission  over  rates,  the  "Combine"  would  still  have  im- 
mense power  of  oppression  through  control  of  local  agents 
and  numerous  other  methods  possible  to  skilled  manipulators. 
Also  the  public  would  be  deprived  of  the  benefit  of  competi- 
tion which  might,  and  in  some  classes  and  localities  could  and 
would  lower  rates  below  the  figures  allowed  by  a  commission. 


EXCESSIVE  PROFITS  OF  INSURANCE  COMPANIES. 
A  statement  which  the  insurance  companies  and  their  ad- 
vocates are  very  fond  of  making  is  that,  in  the  insurance  busi- 
ness as  conducted  by  private  corporations,  the  rates  collected 
by  them  must  be  enough  to  pay  all  losses  and  expenses  and  a 
profit.  This  is  a  general  statement  which  appears,  on  the  face 
of  it.  to  be  fair  and  reasonable,  but  in  reality  is  exceedingly 
deceptive,  because  it  is  incomplete,  lacking    some    very    im- 


54 

portant  necessary  qualifications,  from  the  non-observance  of 
which  a  large  part  of  the  present  day  evils  in  fire  insurance 
arise.      These  qualifications  are  : 

(1)  That  the  losses  must  be  unavoidable,  bona  fide 
losses,  and 

(2)  The  expense  and  profits  must  be  reasonable. 
Now,  the  facts  are,  that  the  losses  to  meet  which  rates 

are  now  fixed  are  not  all  unavoidable  and  bona  fide,  but  a  large 
part  thereof  are  the  direct  result  of  over-insurance,  criminal 
negligence  and  plain  arson,  for  much  of  which  the  companies 
and  the  system  by  which  the  business  is  carried  on  at  the  present 
time  are  responsible.  It  is,  perhaps,  true,  that  over-insurance 
and  its  resulting  evils  are  not  directly  encouraged  by  the  com- 
panies themselves,  but  they  are  the  direct  results  of  the  agency 
system  and  the  large  number  of  dishonest  and  reckless  insur- 
ance agents.  The  results  from  the  local  agency  system  cannot 
be  expected  to  be  otherwise,  when  you  reflect  that  the  com- 
pensation of  the  local  agent  is  a  percentage- commission  on  the 
gross  amount  of  the  premium,  or  tax,  paid  by  the  insurer.  It 
is,  of  course,  true  that  there  are  many  honest  insurance  agents 
who  do  not  allow  this  consideration  to  influence  them  wrongly, 
but,  unfortunately,  there  are  also  many  not  of  this  sterling 
character,  so  that  in  the  aggregate  the  influence  of  the  per- 
centage commission  is  tremendous,  and  a  constant  pressure  in 
favor  of  over-insurance.  The  ordinary  insurance  risk  is  not 
seen  by  anyone  connected  with  the  insurance  company  except 
the  local  agent,  and  not  often  even  by  him.  Consequently,  the 
insurance  is  written  at  whatever  value  figure  the  local  agent 
may  wish,  and  it  is  not  only  to  his  interest  that  the  premium 
rates  be  high,  but  it  is  further  to  his  interest  that  there  be  quite 
frequent  fires,  because  this  strikes  fear  to  property  owners, 
causes  them  to  seek  insurance  and  makes  them  willing  to  pay 
high  rates  for  it.  When  a  local  agent  presents  a  bad  risk,  the 
insurance  company  will  accept  it  in  order  to  secure  the  good 
business  the  agent  controls. 

As  regards  the  second  proviso,  I  find  that  the  expenses 
are  not  reasonable.  In  round  numbers  only  50  per  cent  of  the 
money  collected  as  premiums  is  paid  back  to  policy  holders 
for  losses.  Keeping  in  mind  the  principle  that  insurance  is  a 
tax,  it  immediately  becomes  apparent  to  every  thinking  per- 
son that  an  expense  of  50  per  cent  for  the  collection  and  dis- 
bursement of  this  tax  is  unreasonable  and  exorbitant. 

Profits  are  as  far  from  being  reasonable  as  expenses.    The 


55 

insurance  companies  publish  complicated  tabulations  from 
which  they  argue  that  their  ''underwritinj;  profit"  is  very  h)\v. 
This  claim  is  entirely  deceptive  and  turns  upon  the  peculiar 
meaning  given  to  the  term  "undeiwriting  profit."  In  all  other 
businesses,  the  differenee  between  the  total  income  and  the 
total  expense  is  considered  the  profit  and  figured  as  a  percent- 
age of  the  capital  stock  of  the  company.  The  insurance  com- 
panies, however,  take  the  total  premium  receipts,  and  deduct, 
from  this,  fire  losses,  expenses  of  every  kind  and  character, 
actual  and  estimated,  and  increase  in  liability.  This  difference 
is  called  the  j^rofit,  and  figured  as  a  per  cent  of  the  total 
premium  receipts  for  the  year,  the  result  being  termed  "under- 
writing profit."  There  is  no  reason  why  insurance  i)rofits 
should  not  be  calculated  like  that  of  banks  and  other  corpor- 
ations, except  the  desire  of  the  companies  to  conceal  their 
enormous  profits.  Basing  profits  as  they  should  be,  ui)on  the 
capital  stock,  some  astonishing  results  are  obtained.  For 
instance,  I  find  that,  according  to  the  official  reports  made  to 
me  by  all  the  stock  fire  insurance  companies  doing  business  in 
Illinois,  their  total  income  for  1913  was  $365,785,r)f)5.  and 
their  total  expenditure,  including  dividends  to  stock  holders, 
was  $338,703,821,  leaving  a  profit  of  $27,081,774.  The  combined 
capital  stock  of  all  these  companies  was  $117,242,333.  Thus, 
the  average  profit  of  all  these  companies  was  23.1  per  cent  per 
annum.  In  the  ease  of  foreign  companies  admitted  to  do 
business  here  in  the  United  States,  the  amount  taken  as  capital 
is  the  amount  deposited  in  this  country  in  order  to  secure  per- 
mi.ssion  to  do  business  here.  The  computation  given  above 
does  not,  however,  include  the  annual  dividends  paid  by  the 
companies,  so,  in  order  to  get  the  real  profit,  dividends  must 
be  added.  I  have  not  been  able  to  obtain  the  dividend  figures 
for  foreign  companies,  but  have  done  so  for  the  companies 
domiciled  in  the  United  States.  Tliese,  according  to  their 
official  reports,  for  1913,  had  a  total  income  of  $253,077,525.  In 
the  same  period  their  expenditures,  including  dividends,  were 
$240,138,912,  giving  a  difTerence  of  $12,938,613.  The  paid  up 
capital  stock  of  these  companies  amounts  to  $39,967,347,  so 
that  the  average  percentage  of  profit,  exclusive  of  dividends, 
was  32.8  per  cent.  According  to  the  figures  given  in  the 
American  Exchansre  and  Review  (issue  of  September,  1914), 
the  average  dividend  paid  by  the  above  American  companies 
was  12.3  per  cent.  Adding  this  to  the  above  "profit"  we  have 
45.1  per  cent  per  annum  average  real  profit.    These  results  are 


56 

obtained  from  the  figures  furnished  from  the  companies  them- 
selves and  cannot  in  good  faith  be  disputed.  The  truth  is  that 
there  is  no  other  business  of  similar  magnitude  in  the  United 
States  which  enjoys  such  enormous  profits  as  the  fire  insur- 
ance business.  Certain  individual  instances  further  emphasize 
this  fact.  The  profit  in  1913  of  the  Hartford  Fire  Insurance 
Company  was  the  enormous  figure  of  119.3  per  cent,  of  the 
Continental  92.7  per  cent,  of  the  German  American  86.7  per 
cent,  of  the  American  67.6  per  cent,  of  the  Boston  54.5  per 
cent,  of  the  Buffalo  German  72.7  per  cent.  This  fact  is  reflected 
in  the  very  high  prices  paid  for  the  stocks  of  these  companies. 
To  more  specifically  illustrate  these  profits,  I  will  take  for 
an  example  the  Continental  Insurance  Company.  This  com- 
pany has  a  capital  stock  of  $2,000,000,  and  in  1913  declared  a 
dividend  of  $1,000,000,  or  50  per  cent.  During  the  past  five 
years,  1909  to  1913,  incluusive,  this  companj^  has  declared 
dividends  amounting  to  $5,200,252,  or  at  the  rate  of  over  one 
million  per  year.  In  addition  to  this,  it  has  increased  its  assets, 
the  property  of  its  stock  holders,  over  $5,300,000;  also  at  the 
rate  of  over  one  million  per  year,  or  the  equivalent  of  another 
50  per  cent  dividend  each  year.  The  income  upon  this  stock, 
therefore,  has  been  over  100  per  cent  per  year  for  the  past  five 
years.  It  might  be  mentioned,  also,  that  a  share  of  this  stock 
of  a  par  value  of  $100  sells  for  $900.  It  might  be  added  that 
other  companies  show  years  w^hen  even  higher  profits  were 
made. 

BANKING  PROFITS  OF  COMPANIES. 

It  is  a  very  striking  and  significant  fact,  known  to  but 
few,  that  fire  companies  make  no  reference  whatever  to  their 
enormous  "banking  profits"  when  presenting  statistics  to 
the  public,  showing  their  profits.  Their  income  from  this 
source  is  large,  being  composed  of  interest  earnings  on  the 
enormous  amounts  of  premiums  placed  in  their  hands  by  policy 
holders,  and  other  ordinary  investment  profits  incident  to 
their  business.  The  following  table  (which  does  not  include, 
as  income,  deposit  premiums  on  perpetual  fire  risks  or  cash 
contributed  by  stock  holders,  but  only  pure  income)  shows 
some  astonishing  results : 


Banking  Profits. 

Capital  Stock  Pnmimns  Re-  Income  other 

YEAR.  of  all  ceivod.     (Fire  than 

Companies.  and  Marine.)  Premiums. 

1918 $117,242,333  $334,906,028  $30,879,566 

1912 107,854,789  323,747.258  31,186,886 

1911 103,760.874  307,474.359  29,211,923 

1910 98,178.324  300,251.163  26,568.040 

1909 87,924,512  284,474,144  27,931,569 

Totals...  $514,960,833  $1,550,852,952  .$145,777,984 

Percentage  of  Profit  As  Shown  By  Above  Figures. 

rercenta«c  of  "Other  Capital  Stock  Dividend 

YEAR.  than  Premiums  Income"  produced  by  "Other  than 

to  Premium  Income.  Premiums  Income." 

1913  9.2%  26.3% 

1912  9.6  28.9 

1911  9.5  28.2 

191(^  8.8  27.1 

1909  9.8  31.7 

Average,  9.4%  28.3%  Annually 

Thus  it  is  seen  that  if  the  fire  companies  had  expended 
every  dollar  received  for  premiums  during  the  past  five  years 
to  pay  fire  losses  and  expenses,  they  could  still  have  declared 
a  dividend  averaging  28.3%  on  their  capital  stock  eacii  year. 

AVhen  the  facts  concerning  these  enormous  profits  of  the 
insurance  companiis  are  first  presented  to  the  average  business 
man,  it  is  frequently  difiicult  for  him  to  understand  how  they 
are  possible,  and  he  is  inclined  to  be  skeptical  as  to  the  ac- 
curacy of  the  figures  or  the  good  faith  of  the  statement.  Conse- 
quently I  venture  to  give  a  few  words  further  in  explanation 
of  this  matter.  Insurance  premiums  are  all  paid  in  advance, 
most  for  the  term  of  one  year;  but  a  considerable  number  for 
terms  of  three  and  some  five  years.  Considering  for  the  pur- 
pose of  illustration  the  one  year  policies  only,  such  losses  as 
occur  are  distributed  throughout  the  year  with  some  approxi- 
mation to  regularity.  Some  losses  occur  at  the  beginning  of 
the  year,  some  at  the  end  of  the  year  and  the  others  at  inter- 
mediate times.  Assuming  that  the  distribution  of  losses  is 
regular  throucrhout  the  year,  the  total  efTect  is  the  .same  as  if 
the  insurance  company  received  interest  on  the  total  premium 
collected  for  a  period  of  six  months.  In  addition  to  this,  it 
receives  interest  on  its  capital  surplus  accumulated  from  excess 
of  premiums  over  losses  throughout  tlio  whole  twelve  months 
of  the  year.  The  capital  of  an  insurance  company  is  not  em- 
ployed in  the  business  of  the  company  as  in  the  ease  of  other 
enterprises,  but  is  only  for  the  purpose  of  affording  additional 


58 

security  to  the  policy  holders  that  there  will  be  money  to  meet 
the  losses.  As  a  matter  of  fact,  however,  except  for  exceed- 
ingly infrequent  emergencies,  as  the  Chicago  fire  or  San  Fran- 
cisco disaster,  the  capital  stock  is  never  touched  for  any  pur- 
pose, but  is  invested  in  the  best  interest  bearing  securities  and 
the  interest  goes  to  augment  the  income  of  the  company.  The 
company  collects  an  ample  amount  from  the  policy  holders  to 
pay  all  losses,  expenses  and  a  profit.  Next  take  into  account 
the  fact  that  the  capital  stock  of  the  large  insurance  companies 
is  small  in  relation  to  the  business  done  by  them,  for  example, 
suppose  we  have  a  company  with  a  capital  stock  of  $2,000,000, 
a  surplus  of  $15,000,000,  and  a  premium  collection  of 
$10,000,000,  annually.  Suppose  now  we  have  an  interest  in- 
come of  five  per  cent  on  the  capital  stock  of  $2,000,000,  and  a 
surplus  of  $15,000,000,  for  the  entire  year,  and  on  the  premium 
receipts  of  $10,000,000,  for  six  months,  the  total  amount  of  in- 
terest received  would  be  $1,100,000,  which  would  be  55%  on 
the  capital  stock  of  $2,000,000.  These  are  approximately  the 
actual  figures  of  one  of  the  largest  insurance  companies  for 
the  year  1913,  and  many  other  similar  cases  can  be  given,  and 
shows  clearly  how  the  tremendous  profits  of  this  and  other  large 
insurance  companies  are  possible.  It  is  probable,  however, 
that  through  shrewd  banking  and  investment  operations  of  the 
companies,  more  than  5%  interest  is  realized. 

It  should  be  observed  that  the  profits,  as  explained  above, 
does  not  include  "underwriting  profits,"  *which  are  the  only 
kind  of  "profits"  to  which  the  companies  make  any  reference 
in  their  published  statements. 

PROFITS  FROM  ILLEGITIMATE  STOCK  TRANSACTIONS. 

There  is  another  element  which  enters  into  the  question 
of  fire  insurance  profits.  Investigation  by  the  United  States 
government  authorities  into  illegitimate  stock  manipulations, 
such  as  the  New  Haven  stock  transactions,  has  shown  that 
officials  of  fire  companies  unload  on  their  company  worthless 
or  depreciated  stocks  and  bonds.  These  securities  are  then 
sold  by  the  companies  at  a  loss,  and  this  loss  is  included  in  the 
ordinary  losses  and  expenses  when  the  companies  figure  their 
profits.  In  the  case  of  the  New  Haven  Railroad,  forty-three 
companies  held  $7,765,691  in  stocks  and  bonds  of  this  railroad. 
Of  this  amount  the  sworn  statements  of  the  respective    com- 

"The  reader  should  refer  to  page  55  for  an  explanation  of  what 
"underwritint:  profits"  are,  in  the  deceptive  sense  in  which  the  com- 
panies   use    this    term. 


59 

panies  show  that  $1,331,061  worth  was  acquired  in  1913,  when 
it  was  known  that  the  New  Haven  was  certain  to  fail.  It  is  ap- 
parent that,  in  this  instance,  ''unloading"  was  practiced  on  a 
large  scale. 

SURPLUS  AND  PROFIT  PERCENTAGE  CALCULATION. 
Some  defenders  of  the  insurance  companies,  however,  say 
that  instead  of  profit  being  calculated  as  a  percentage  of  the 
capital  stock  invested  in  the  business  that  it  should  be  calcu- 
lated upon  this  capital  stock  plus  the  value  of  the  insurance 
reserve.  If  calculated  in  this  way  the  percentage  profit  aver- 
ages perhaps  ton  to  fifteen  per  cent  per  annum,  which  they 
claim  is  only  a  fair  rate  of  income.  If  the  surplus  had  been 
accumulated  by  the  self-denial  of  the  stock  holders  of  the  in- 
surance companies  in  not  taking  out  of  the  business  a  reason- 
able profit,  but  allowing  it  to  accumulate  therein  for  the  further 
security  of  the  policy  holders,  there  might  be  some  justifica- 
tion of  the  position.  Such,  however,  is  not  the  case.  These 
surpluses  have  been  accumulated  out  of  excessive  profits  during 
years  in  which  enormous  dividends  have  also  been  paid.  In 
other  words,  the  rates  were  so  excessive  that  the  companies 
were  able  to  pay  enormous  dividends  of  the  magnitudes  shown 
above,  and  in  addition  pass  large  sums  of  profits  to  the  surplus. 
If  an  equitable  view  of  the  matter  is  taken,  the  stockholders 
have  not  furni.shed  the  money  piled  up  in  the  surplus,  but  this 
has  been  extorted  from  insurers  as  excessive  rates.  Therefore, 
to  claim  that  insurance  profits  should  be  considered  a  per- 
centage upon  the  surplus  is  wholly  unjustified. 

This  surplus  is  accumulated  from  premiums  paid  by  policy 
holders,  being  an  amount  in  excess  of  that  neeessary  to  pay 
fire  losses,  exc^.ssive  expenses,  enormous  salaries  and  large 
dividends  and  belongs,  as  a  matter  of  right,  to  the  policy  holder, 
and  cannot  be  justly  considered  as  capital  of  the  stock  holders 
on  which  they  are  entitled  to  dividends.  A  stock  holder  is 
only  equitably  entitled  to  returns  from  his  own  money,  which 
he  lias  paid  into  the  company's  treasury. 

EXCESSIVE  SALARIES  TO  OFFICERS. 

AiKitlicr  item  ul'  uiijustKiahle  cxpt'iiscs  of  tlic  insurance 
companies  is  the  enormous  salaries  paid  to  its  officials.  It  is 
diffienlt  tci  obtain  exact  amounts  as  to  these  facts,  but  it  is 
said  that  tin-  president  of  the  Continental  Insurance  Company 
receives  a  regidar  salary  of  $50,000.00  per  annum,  with  certain 
percentage  allowances  which  gives  him  a  total  recompense  of 


60 

considerably  over  $100,000.00  per  annum.  The   officers  of 

other  large  companies  are  similarly  compensated. 

INSURANCE  HAZARD. 

It  is  sometimes  claimed,  also,  on  behalf  of  the  companies 
that  they  are  justly  entitled  to  these  great  profits  by  reason 
of  the  risks  they  take.  This  assertion  is  entirely  untenable. 
The  rates  are  so  high  that  they  more  than  cover  the  fire  loss, 
excessive  expenses  and  enormous  profits,  as  shown  by  a  great 
number  of  years  of  experience  of  each  company.  This  being 
true,  there  is,  in  reality,  no  risk  whatever  taken  by  the  insur- 
ance company,  except  the  remote  "conflagration  hazard,"  for 
which  also  the  companies  provide  after  each  conflagration 
by  a  strong  raise  in  rates,  which  are  kept  in  force  continuously 
and  result  in  enormous  additional  profit  to  the  companies,  as 
I  have  previously  shown  (p.  40).  Insurance  "hazards"  are 
much  less  than  the  financial  perils  which  beset  the  ordinary 
merchants.  This  is  proven  by  the  fact  that  a  much  larger 
per  cent,  in  proportion  to  capital  invested  in  mercantile  and 
industrial  ventures,  fail. 

It  is  true  that  quite  a  number  of  stock  fire  insurance  com- 
panies yearly  cease  to  do  business,  but  this  results  from  the 
operation  of  the  "Combines",  and  neither  indicates  nor  proves 
that  the  business  is  unprofitable.  In  1913,  out  of  thirty-two 
stock  fire  insurance  companies  which  ceased  to  do  business, 
thirty  continued  their  existence  as  "annexes"  of  larger  com- 
panies. This  does  not  indicate  they  were  doing  a  losing  busi- 
ness, but  simply  that  they  were  sold  at  great  profit  to  the 
larger  insurance  corporations  to  further  mouopol}^  by  reducing 
the  number  of  competitors. 

OTHER  RECOMMENDATIONS. 

I  would  also  make  the  following  additional  recommenda- 
tion for  the  reform  of  certain  details  of  the  insurance  business 
in  case  it  is  impossible  to  secure  State  insurance  immediately. 

DETAILED  STATEMENT  OF  VALUE  OF  INSURED 
PROPERTY. 

It  should  be  required  by  law  that  there  be  made  a  full 
description,  with  an  explicit  statement  of  the  value  of  build- 
ings insured,  and,  in  the  case  of  personal  property,  an  invoice 
of  it,  signed  by  the  owner,  and  approved  by  the  local  agent. 
The  same  penalty  should  be  provided  for  making  false  state- 
ments as  to  value,  condition,  quantity,  etc.,  of  either  real  or 


i«i^ 


61 

personal  property,  as  are  by  law  now  provided  for  obtaining 
money  by  false  pretenses,  in  addition  to  n'nderinjx  the  policy 
voidable,  in  the  same  way  that  material  misrei)resi'ntations  in 
an  application  for  life  insurance  renders  a  life  policy  voidable. 
It  should  be  required  that  the  insurance  ap:ent,  before  ai)prov- 
ing  such  statement,  should  make  a  personal  inspection  of  all 
property,  real  or  personal,  included  in  such  statement,  and 
that  this  fact  siiould  be  certified  to  in  his  approval  of  same. 
Such  description  and  valuation  should  be  attached  to  and 
made  a  part  of  each  insurance  policy.  This  i)lan  would  pre- 
vent practically  all  over-insurance  of  property,  which  is  what 
leads  to  arson. 

STANDARD  POLICY. 

A  standard  form  of  liie  iu^uiaiire  i)oliey  should  be  adopted 
by  the  State,  and  it  should  be  required  that  this  contain  a  full 
and  complete  itemization  of  all  of  the  hazards,  credits,  penalties, 
etc.,  which  go  to  make  up  the  complete  rate  charged  on  such 
policy  so  that  the  property  owner  could  see  how  his  rate  was 
made  up,  and  so  be  able  to  know  how  to  obtain  a  lower  rate 
by  removing  unfavorable  conditions.  There  should  be  a  pro- 
vision that,  if  an  owner  improves  his  property  so  as  to  remove 
unfavorable  conditions,  the  property  be  given  a  re-inspection, 
and  a  lower  insurance  rate  immediately  granted. 

CANCELLATION  OF  POLICIES,  ETC. 

Insurance  companies  should-  not  be  allowed  to  cancel 
policies  at  will.  Cancellation  should  only  be  allowed  if  there 
had  been  material  misrepresentations,  or  when  there  has 
occurred  a  material  change  in  the  condition  of  the  risk,  and 
these  things  should  be  required  to  be  proven  in  court.  If  a 
company  should  bring  suit  to  cancel  a  policy  and  a  fire  occurred 
before  the  case  was  decided,  then,  upon  a  final  decision  in 
favor  of  the  company,  it  should  be  relieved  from  liability. 

Insurance  companies  should  also  be  reriuired  to  grant 
insurance  at  regular  rates  for  the  class  to  which  the  ri.sk  be- 
longs to  any  applicant  in  the  same  way  that  a  ecuninon  carrier 
must  transport,  or  a  hotel  keeper  must  give  lodgings  to  any 
decent  person.  The  companies,  however,  should  be  allowed  to 
refuse  insurance  for  substantial  objections  either  to  the  risk 
or  the  owner  proven  in  court. 


62 

AGENTS'  QUALIFICATION  REQUIREMENTS. 

Outside  of  exorbitant  rates,  a  considerable  part  of  the  evils 
which  affect  the  fire  insurance  business  arise  from  the  fact  that, 
under  the  Illinois  law,  any  person  whatever  can  act  as  a  fire  in- 
surance agent.  It  is  true  that  the  law  now  requires  that  each 
agent  secure  license  from  my  Department,  but  there  are  no 
qualifications  prescribed  as  pre-requisites.  The  natural  result 
is  that  a  certain  proportion  of  insurance  agents  are  incompetent 
and  their  work  perilous  to  the  insuring  public.  This  could  be 
very  effectually  remedied  by  a  requirement  that,  before  agents 
are  issued  licenses,  they  must  show  reasonable  qualifications 
which  will  enable  them  to  understand  and  carry  on  the  busi- 
ness of  writing  fire  insurance  in  a  careful  and  business  like 
manner,  in  accordance  with  the  insurance  laws  of  the  State. 
The  provisions  suggested  by  the  Illinois  State  Association  of 
Local  Fire  Insurance  Agents  appear  to  me  to  be  well  adapted 
for  this  purpose,  and  I  would  recommend  that  the  salient  fea- 
tures of  the  same  be  incorporated  into  our  insurance  laws. 

FOREIGN  RE-INSURANCE  AND  NET  LINES. 

The  following  insurance  practice  tends  to  increase  -the  cost 
of  fire  insurance,  and  is  also  an  efficient  aid  to  monopoly: — a 
fire  insurance  company  will  issue  a  policy  for  an  amount  greater 
than  it  can  carry  individually,  and  then  re-insures  the  excess 
in  a  foreign  "treaty"  company.  There  are  no  American  re- 
insurance companies,  with  the  exception  of  one,  which  is  owned 
by  foreign  capital.  During  the  year  1913,  $38,000,000  were 
sent  across  the  ocean  for  re-insurance  premiums.  Thus  cost  of 
insurance  is  increased_because  of  the  increase  of  the  number 
of  middlemen  who  each  make  a  profit  from  the  original  prem- 
ium paid  by  the  polic.y  holder.  Its  tendency  toward  centrali- 
zation is  due  to  the  fact  that  the  large  companies,  by  reason  of 
their  great  agenc}'  forces,  are  able  to  write  a  far  greater  amount 
of  insurance  than  they  themselves  desire  to  carry,  but  re-insure 
the  excess.  Consequently,  small  companies  are  unable  to 
secure  business  which  they  would  otherwise  get  if  no  companies 
were  permitted  to  write  more  insurance  than  it  was  itself  able 
and  willing  to  carry.  Furthermore,  the  extent  to  which  they 
have  indulged  in  this  practice  has  embarrassed  several  com- 
panies considerably,  at  the  present  time,  because  of  the  fact 
that  they  are  legally  responsible  to  their  policy  holders  for  the 
full  amount  of  all  policies  written.  In  case  of  loss,  the  Ameri- 
can companies  look  to  the  foreign    companies    for   reimburse- 


G3 

ment,  but,  on  account  of  the  present  European  war,  these  com- 
panies are  temporarily  unable  to  meet  their  oblij;ations. 

I  recommend  that  a  "Net  Line"  law  be  enacted,  prohibit- 
ing companies  from  writing  insurance  upon  any  property  in  an 
amount  greater  than  they  are  tht'uiselves  able  and  willing  to 
carry. 

COINSURANCE. 

The  subject  of  eo-in.surani:c  is  our  wliieii  lias  been  liberally 
discussed,  but  no  legislative  action  taken  in  relation  thereto  in 
Illinois.  The  actual  practice  of  the  companies  doing  business 
in  Illinois  varies  with  respect  to  co-insurance,  but  I  believe  that 
a  majority  of  existing  policies  are  without  co-insurance  provis- 
ions. The  companes,  however,  strongly  desire  to  put  co-insur- 
ance clauses  in  all  policies  for  reasons  mentioned  below,  so  that 
this  subject  should  be  carefully  considered,  particularly  as  co- 
insurance is  prohibited  by  statute  in  many  States. 

The  term  co-insurance  has  the  following  meaning:  Sup- 
pose an  owner  instead  of  insuring  his  property  for  the  full  value 
decides  that  he  will  only  insure  for  a  part,  say  one-half  its  value, 
trusting  that  in  case  of  a  fire  it  will  be  extinguished  before  the 
property  is  damaged  more  than  one-half.  In  cities  where  there 
is  good  fire  protection  the  great  majority  of  fires  are  extin- 
guished before  the  total  loss  occurs.  Under  the  ordinary 
insurance  policy  where  tiu^  property  is  only  insured  for.  say,  one- 
half  its  value,  tlif  company  is  bound  to  pay  for  all  of  the  dam- 
age which  occurs  up  to  the  face  of  the  policy.  Thus  the  insured 
for  a  small  premium  is  nearly  always  able  to  collect  enough 
money  to  pay  all  the  fire  loss  which  actually  occurs.  Naturally 
the  insurance  companies  are  reluctant  to  see  the  property  owner 
get  off  so  easy  and  obtain  practically  complete  protection  by 
paying  premiums  on  only  a  part  of  its  value,  because  thereby 
their  revenue  is  reduced.  Consequently  to  i)revent  i>roperty 
owners  from  getting  any  benefit  out  of  this  plan  of  insuring  for 
only  a  part  of  the  value  of  the  property  where  there  is  good  fire 
protection,  the  companies  have  devised  what  they  term  a  co- 
insurance clause  to  be  inserted  in  policies  to  the  effect  that,  in 
case  a  property  is  only  insured  for  partial  value,  say  one-half, 
in  case  partial  loss  occurs,  only  such  proportion  of  that  loss 
will  be  paid  as  tlie  insurance  on  the  property  bears  to  the  total 
value  of  the  property.  If  the  insurance  on  the  property  was 
$4,000.00  and  the  actual  value  of  the  property  was  $8,000.00, 
then  in  case  of  loss  only  one-half  of  the  actual  damage  would 
be  paid  to  the  insured.  Thus,  in  order  to  obtain  the  total  insur- 


64 

ance  of  $4,000.00  under  such  a  provision,  there  would  have  to 
be  a  total  destruction  of  the  property  amounting  to  a  loss  of 
$8,000.00.  On  any  smaller  loss  the  owner  would  receive  less 
than  the  face  of  the  policy;  if  the  damage  was  $6,000.00,  he 
would  receive  $3,000.00 ;  if  $2,000.00  only  $1,000.00,  and  in  pro- 
portion for  all  other  damages. 

Co-insurance  is  a  subject  as  to  which  opinions  vary  widely. 
Some  states  permit  the  companies  to  use  co-insurance  clauses  in 
their  policies,  but  in  a  large  part  of  the  states  this  is  prohibited. 
The  fact  that  property  is  insured  for  less  than  its  value  is  an 
absolute  protection  against  arson  by  the  owner.  If  the  owner 
who  pays  taxes  to  maintain  an  efficient  fire  department  wishes 
to  get  some  advantage  out  of  this  expenditure  by  insuring  his 
property  for  less  than  its  full  value,  trusting  the  fire  protection 
to  prevent  full  loss,  I  believe  he  should  be  permitted  to  do  so 
without  being  penalized  by  a  co-insurance  clause.  Otherwise, 
the  insurance  companies  reap  the  benefit  of  the  good  fire  pro- 
tection the  owner  has  paid  for,  and,  if  permitted  to  compel  co- 
insurance, are  able  to  collect  as  high  rates  from  the  insured  as 
if  there  were  no  fire  protection  whatever.  The  companies  claim 
that  permitting  an  owner  to  insure  for  less  than  the  full  value 
of  the  property  is  a  species  of  discrimination  because  it  per- 
mits the  more  wide  awake  and  venturesome  business  man  to 
get  protection  for  that  proportion  of  the  property  which  is 
liable  to  be  damaged  in  the  ordinary  fire  at  less  rates  than  the 
more  timid  man  who  is  only  satisfied  by  having  the  value  of  his 
property  totally  covered  by  insurance.  This  may  be  true,  but 
my  view  is  that  the  enterprising  and  venturesome  owner  is  en- 
titled to  all  the  benefit  he  gets  out  of  the  additional  risk  which 
he  takes  and  the  fire  department  tax  he  pays.  By  doing  this 
he  is  simply  carrying  a  part  of  his  own  insurance.  There  is  no 
discrimination  whatever  in  permitting  owners  to  insure  for  less 
than  full  value  because  any  man  can  do  this  if  he  desires.  Dis- 
crimination only  arises  where  the  effect  is  to  give  one  man  a 
privilege  which  others  do  not  have.  The  fact  that  one  man 
may  not  feel  able  to,  or  may  not  dare  to  carry  a  part  of  his  own 
insurance,  does  not  render  it  a  discrimination  to  permit  other 
more  venturesome  men  to  do  so.  In  fact,  co-insurance  which 
compels  all  men  to  insure  for  the  full  value  of  their  property  is 
a  clear  discrimination  against  the  venturesome  man,  and 
amounts  to  forcing  property  owners  to  allow  insurance  compan- 
ies to  take  all  of  the  risk,  which,  when  the  insurance  companies 
have  the  fixing  of  the  rates,  compels  the  property  owner  to  pay 


65 

the  full  tax  or  do  without  insurance.  But,  insuranot'  under 
modern  conditions  being  a  necessity,  the  real  effect  of  insurance 
is  to  compel  all  property  owners  to  pay  full  taxation  to  the  in- 
surance companies. 

Consequently,  after  careful  consideration,  I  recommend 
that,  while  there  should  be  stringent  provisions  to  prevent  over- 
insurance,  co-insurance  clauses  should  not  be  permitted, 
but  that  the  insurance  companies  should  be  compelled  to  pay 
the  total  damage  suff^Ttnl  on  a  risk  up  to  the  face  of  the  policy. 

•  VALUED  POLICIES." 
In  connection  with  co-insurance  comes  the  subject  of  a 
Valued  Policy  Act.  This  is  a  provision  compelling  an  insurance 
company  to  pay  the  face  amount  of  the  policy  in  case  of  a 
total  loss,  the  value  of  the  property  destroyed  by  fire  being  ac- 
cepted without  proof.  The  companies  oppose  such  a  pro- 
vision of  law  as  tending  to  fo.ster  arson,  yet  their  position  in 
this  regard  is  inconsistent.  One  purpose  of  a  Valued  Policy 
Act  is  to  prevent  overinsurance,  it  being  presumed  that,  if  a 
company  knows  it  is  to  be  held  liable  for  the  full  amount  of  a 
policy,  more  care  will  be  exercised  in  writing  the  insur- 
ance. However,  the  companies  have  found  overin.surance  very 
profitable  to  themselves  and  without  a  valued  policy  provision 
are  permitted  to  receive  a  premium  on  an  overinsured  value  of 
property  and  than  scale  the  amount  on  payment  of  a  loss.  With 
the  elimination  of  overin.surance,  a  Valued  Policy  Act  will  not 
be  necessary. 

FIRE  PREVENTION. 

In  addition  to  the  elimination  of  overinsurance  and  con- 
sequent arson,  which  I  have  mentioned  above  as  tending  to 
prevent  fires,  there  are  certain  other  measures  which  would  as- 
sist in  reducing  this  tremendous  annual  lo.ss  to  rea.sonable 
figures,  such  as  those  in  European  countries.  Among  these  is 
the  installation  of  automatic  sprinklers  for  the  protection  not 
only  of  goods  within  buildings,  ])ut  in  the  case  of  certain  build- 
ings in  congested  districts  of  great  cities  the  installation  of 
similar  devices  on  the  exterior  of  buildings,  called  "water  cur- 
tains." which  are  pipts  arranged  so  that  when  heated  to  a  cer- 
tain point  they  open  the  same  as  the  automatic  sprinkler  heads 
on  the  interior  of  buildings.  This  permits  a  sheet  of  water  to 
nm  down  the  outside  of  the  l)uilding  and  is  very  effective,  par- 
ticularly when  used  in  combination  with  window  glass  rein- 


—3 


66 

forced  by  wire  netting  to  prevent  buildings  catching  fire  from 
adjacent  fires. 

A  striking  example  of  the  benefits  of  this  was  exhibited 
at  the  very  recent  fire  in  Salem,  Massachusetts,  where  a  build-, 
ing  protected  in  this  way,  both  within  and  without,  in  the  midst 
of  a  large  fire,  stored  with  inflammable  material,  remained 
standing.  The  water  curtains  on  the  outside  operated  and 
kept  down  the  heat  so  that  not  only  did  the  building  not  catch 
fire,  but  not  a  single  sprinkler  head  on  the  inside  opened. 

EDUCATION  IN  FIRE  PREVENTION. 

Another  important  means  of  fire  prevention  is  the  educa- 
tion of  the  Public  and  particularly  of  school  children  on  this 
subject.  Among  the  topics  on  which  information  could  be 
profitably  given  are :  danger  from  defective  chimneys  and 
stove  pipes ;  from  defective  electric  wiring ;  from  use  of  kero- 
sene to  start  fires ;  from  accumulations  of  leaves,  rubbish,  etc., 
and  from  bonfires  of  the  same;  from  the  use  of  gasoline  and 
illuminating  gas ;  from  cigar  and  cigarette  stubs ;  from  fire 
crackers,  fire  works,  matches,  etc.  I  believe  that,  since  safety 
matches  have  become  as  cheap  as  any  other  kind,  the  sale 
of  parlor  matches,  and,  in  fact  of  all  other  kind  of  matches, 
excepting  safety  matches,  should  be  prohibited. 

Information  should  also  be  given  of  the  usefulness  of 
proper  lightning  rods  for  preventing  fires  from  this  cause, 
particularly  on  farm  buildings.  This  is  not  said  for  the  pur- 
pose of  aiding  professional  lightning  rod  agents,  who  have  so 
often  swindled  the  People  in  the  past  by  selling  them  rods, 
usually  worthless,  at  exorbitant  prices.  Better  lightning  pro- 
tection than  furnished  by  lightning  rod  agents  can  be  provided 
at  very  small  expense,  and  erected  by  anyone,  in  the  form  of  a 
good  galvanized  iron  or  copper  wire  cable  nailed  directly  to  the 
building  extending  two  or  three  feet  above  the  highest  point 
and  sunk  at  the  bottom  down  to  permanently  moist  earth. 
Scientists  say  that  not  only  are  glass  or  other  insulators  useless, 
but  they  are  positively  disadvantageous.  If  the  conductor  is  un- 
broken and  extends  into  moist  earth,  there  is  no  danger  what- 
ever that  the  electricity  will  leave  it  and  strike  into  the  build- 
ing when  fastened  directly  against  the  wall.  If  the  conductor 
is  broken,  insulators  will  not  save  the  building.* 

*This  subject  is  fully  treated  in  Farmers'  Bulletin  No.  367,  Light- 
ning and  Lightning  Conductors,  by  Alfred  J.  Henry,  issued  by  the 
United  States  Department  of  Agriculture,  from  which  it  can  be  ob- 
tained free.  I  recommend  every  property  owner  to  send  for  this  and 
protect  his   buildings   according  to   its  directions. 


67 
Information  should  be  given  as  to  the  advantages  of  fire- 
proof construction,  or,  where  this  is  impossible  from  cost,  of  the 
best  fire  resist in-r  iiiati'rial.  paints,  etc.,  and  particularly  of  the 
best  material  and  nu'tliod  ot"  ruof  construction  for  resisting 
fires.  A  considerable  number  of  fires  originate  in  roofs,  and,  in 
ccwiflagrations,  a  fire  is  nearly  always  carried  by  roofs  being 
set  on  fire. 

CLAIM  THAT  INSURANCE  MONOPOLY  IS  NECESSARY. 
The  fire  insurance  companies  strenuously  claim  that  their 
business  can  only  be  conducted  by  means  of  an  agreement  or 
combination  for  the  purpose  of  making  rates.  They  admit  that 
the  method  is  monopolistic,  but  justify  this  and  claim  that  it 
is  absolutely  necessary  in  fire  insurance.  The}'  endeavor  to 
disarm  suspicion  by  using  the  harmless  term  of  "co-operation" 
instead  of  "trust,"  "agreement"  or  "Combine."  The  facts  in 
the  case  ar^  that  the  insurance  business  in  Illinois  as  at  present 
conducted  by  the  companies  through  "Combines,"  which  I  have 
already  described,  is  a  monopoly  of  the  most  oppressive  type. 
Under  the  terms  of  the  existing  understanding,  inspections 
are  made  and  rates  fixed  for  all  the  companies  through  the  de- 
vice called  the  "Illinois  Inspection  Bureau."  If  the  community 
of  action  stopped  at  this  point  there  might  be  some  truth  in  the 
claim  that  it  was  legitimate  co-operation  to  save  expense.  But 
this  is  only  a  preliminary.  The  essential  thing  is  the  further 
agreement  to  maintain  rates  and  the  Stamping  Bureaus,  and 
other  effective  machinery  for  enforcing  the  rate  agreement, 
wliich  enables  the  "Combine"  to  compel  every  member  to  ob- 
serve these  rates.  The  courts  of  Illinois  have  explicitly 
decided  that  an  agreement  or  combination  for  the  purpose  of 
maintaining  fire  insurance  rates  is  contrary  to  the  laws  of  the 
State  of  Illinois.  The  insurance  companies  recognized  the  cor- 
rectness of  these  decisions  when  they  dropped  their  previous 
combination  methods  and  attempted  to  evade  these  decisions 
by  putting  into  operation  the  Illinois  Inspection  Bureau  device 
and  the  secret  understanding  to  enforce  its  rates  instead  of 
the  previous  open  agreement  to  that  effect.  All  other  business 
in  the  State  mu.st  be  done  subject  to  the  anti-monopoly  laws 
of  the  State.  Since  courts  have  decided,  and  their  decision 
still  .stands  as  the  law  of  the  State,  that  the  anti-monopoly  pro- 
visions apply  to  the  insurance  business  al.so,  the  insurance  com- 
panies' demand,  that  they  be  allowed  to  continue  their  so-called 
co-operation,  amounts  to  this: — that  they  be  permitted  to  con- 
tinue to  violate  the  anti-monopoly  laws  of  the  State. 


68 

Of  course,  no  reasonable  person  will  claim  that  the  insur- 
ance companies  should  have  the  privilege  of  violating  the  anti- 
monopoly  law,  by  any  subterfuge,  device  or  trick,  whatever, 
and  the  companies  do  not  dare  to  openly  take  this  position 
themselves,  and,  therefore,  falsely  term  their  scheme  "co- 
operation," because  co-operation,  in  the  correct  use  of  the  term, 
is  not  only  a  lawful,  but  a  highly  commendable  thing. 

Leaving  aside,  for  a  moment,  the  entire  illegality  of  what 
the  companies  are  doing  under  the  euphemistic  name  of  co-oper- 
ation, I  desire  to  examine  briefly  the  claims  they  make  in  favor 
of  this  alleged  co-operation.  These  in  brief  are :  that  this  is  a 
greater  economy  to  the  companies  in  making  schedules,  inspect- 
ing and  supervising  risks  and  repressing  incendiarism;  that 
otherwise  it  would  be  impossible  to  regulate  rates  and  they 
would  be  unstable  and  discriminatory. 

I  will  frankly  admit  that  there  would  probably  be  some 
economy  in  having  the  inspections  and  schedules  (which  are 
estimates  of  relative  fire  hazards)  made  for  all  companies  at 
one  time,  but  it  does  not  follow  that  it  is  best  for  the  People 
that  this  should  be  done  by  a  "Combine"  of  the  companies. 
In  the  first  place  far  worse  discrimination  and  favoritism  are 
not  only  possible  but  are  actually  practiced  at  present  by  the 
"Combine's"  rate-making  institution  than  would  be  possible 
under  open  competition,  and  the  public  is  absolutely  helpless 
against  these  things.  There  is  no  one  to  whom  appeal  can  be 
made  against  them.  Their  inspection  bureau  possesses  arbitrary 
and  absolute  power.  In  the  second  place,  there  is  no  protection 
whatever  from  exorbitant  rates.  The  Bureau's  rates  will  in- 
evitably reflect  the  desires  of  the  companies  for  larger  and 
larger  profits,  and  while  provisions  for  State  regulation  of  these 
rates,  similar  to  that  imposed  upon  public  utilities,  would  help 
somewhat,  still  this  process  is  slow  and  cumbersome. 

If  insurance  by  private  companies  is  to  be  continued,  the 
best  method  of  rate-making  is  to  have  this  done  by  a  State  com- 
mission, which  will  be  more  economical  than  their  present  ar- 
rangement, will  be  free  from  the  discrimination  and  favoritism 
practiced  at  present,  and,  most  important  of  all,  will  enable  a 
thorough  and  scientific  study  of  the  whole  subject  to  be  made 
and  reasonable  maximum  rates  made  in  the  fixing  of  which  the 
People,  through  their  commission,  will  have  something  to  say. 

The  claim  of  the  companies  that  under  free  competition 
rates  are  unstable  and  therefore  discriminatory  is  w^hoUy  falla- 
cious, and  not  made  in  good  faith,  but  is  a  false  appeal  to  the 


69 

People's  just  resentment  against  discrimination  in  order  that 
the  companies  may  be  allowed  to  continue  their  "Combine"  by 
which  they  are  able  to  extort  excessive  premiums.  Discrimi- 
nation is  entirely  unjust  and  should  not  be  permitted  in  any 
form.  It  cannot,  however,  be  prevented  even  partially  hy  per- 
mitting the  companies  to  combine,  except,  perhaps,  through 
substitution  by  the  companies  of  a  still  worse  thing, — equal  ex- 
tortion levied  on  all  instead  of  some  being  able  to  partially 
escape.  Only  direct  State  intervention  can  effectually  prevent 
discrimination. 

The  particular  discrimination  which  they  allege  is  liable  to 
occur  under  free  competition  is  that  large  insurers  and  keen 
business  men  can,  by  playing  one  company  against  the  other, 
secure  lower  rates  than  smaller  or  less  active  competitors. 
This,  if  true,  would  bo  an  evil,  but  will  be  absolutely  done  away 
with  by  either  State-made  rates  or  a  system  of  State  insurance, 
and  cannot  be  thoroughly  eliminated  by  any  other  method.  If 
the  "Combine"  methods  are  permitted  or  legalized  it  is  pos- 
sible that  some  discrimination  would  be  abolished,  but  it  will 
not  be  by  lowering  the  rates  of  the  smaller  insurers.  It  will 
be  by  raising  the  rates  of  the  big  insurers.  This  has  already 
occurred  to  a  considerable  extent  during  the  past  few  years  in 
Illinois  under  the  power  usurped  by  the  existing  "Combine" 
and  with  a  further  access  of  power  through  express  recogni- 
tion of  "Combine"  methods  the  process  will  be  completed  and 
the  rates  of  everyone  forced  up  to  the  highest  point  now 
exacted  from  any  insurers,  and  the  excessive  and  enormous 
profits  of  the  "Combine"  companies  still  further  enhanced. 

The  reality  of  this  process  of  forcing  up  rates  is  attested  by 
numerous  complaints  on  file  in  my  office,  from  all  parts  of  the 
State,  of  enormous  raises  of  rates  made  since  the  Illinois  In- 
spection Bureau  went  into  operation  in  1908.  If  this  institu- 
tion or  something  similar  was  legalized,  the  "Combine"  would 
find  some  means  of  neutralizing  the  only  protection  which  now 
remains  to  any  of  our  citizens;  that,  is  competition  from  the 
mutuals.  Mutual  insurance  is  impossible  at  the  present  time 
for  a  large  part  of  property  owners  in  this  State.  If  it  should, 
by  some  means,  be  rendered  unavailable  to  all  of  them,  then  our 
citizens  would  be  entirely  at  the  mercy  of  the  companies,  and 
would  either  have  to  pay  such  rates  as  the  insurance  "Com- 
bine" saw  fit  to  dictate  or  do  ^v^thout  insuraoce.  But  many 
cannot  do  without,  because  they  cannot  otherwise  obtain  credit 
to  carry  on  their  business. 


70 

All  the  trusts  and  monopolies  make  practically  similar 
defenses  of  economy  and  similar  claims  of  disaster  unless 
monopolies  are  permitted,  etc.,  and  they  are  as  false  and  detri- 
mental to  public  welfare  in  the  insurance  business  as  in  any 
other  business.  In  fact,  since,  as  I  have  shown,  the  effect  of  the 
insurance  monopoly  is  to  increase  instead  of  decrease  fires,  I  be- 
lieve that  the  insurance  monopoly  has  a  more  damaging  and 
dangerous  influence  on  public  welfare  than  other  monopolies. 

MONOPOLY. 

Monopoly  is  the  greatest  evil  of  the  modern  industrial  era. 
The  general  effect  of  monopoly  on  the  welfare  of  the  People 
cannot  be  better  summarized  than  in  the  words  of  President 
Woodrow  Wilson: 

"Private  monopolies  are  indefensible  and  intolerable." 
It  only  remains  to  be  considered  whether  the  effect  of  the  in- 
surance "Combine"  is  different  and  whether  it  should  be 
legalized,  while  other  monopolies  are  outlawed.  The  facts  and 
considerations  I  have  outlined  above  refute  such  claims  con- 
clusively. The  fire  insurance  monopoly  not  only  taxes  the 
People  more  than  twice  as  much  as  would  be  necessary  to  dis- 
tribute the  legitimate  fire  loss  among  the  whole  People  instead 
of  allowing  it  to  crush  a  few  unfortunates,  but  actuallj^  in- 
creases the  annual  fire  waste  and  loss  of  human  life.  Some 
monopolies  in  return  for  their  exactions  have  given  improved 
service  to  the  Public,  but  the  effect  of  the  fire  insurance 
monopoly  is  to  make  natural  conditions  worse. 

There  is  a  curious  inconsistency  in  the  companies'  position 
that  they  cannot  survive  free  competition  because  the  fact  is 
that,  except  in  the  matter  of  premium  rates,  the  companies  are 
and  will  continue  to  be  in  intense  competition  as  to  other  things, 
particularly  the  commission  paid  to  agents.  There  are  two 
ways  of  increasing  the  business  of  a  company.  One  is  by  re- 
ducing the  rates  to  the  Public,  the  other  is  by  increasing  the 
commission  to  the  agents.  Just  as  soon  as  by  combination  the 
companies  have  gotten  rid  of  competition  in  premium  rates, 
then  they  begin  competition  for  business  by  raising  the  commis- 
sion to  their  agents.  This  has  gone  to  an  almost  unbelievable 
extent.  In  Chicago  the  companies  according  to  sworn  state- 
ments made  in  examination  by  my  Department  admitted  they 
pay  commission  as  high  as  40  per  cent  on  some  lines. 

The  insurance  companies  can  continue  to  do  business 
while  competing  in  premium  rates  just  as  well  as  they  can  con- 


71 

tinue  to  do  business  while  competiug  for  local  agents  and  other 
factors  in  their  business.  It  is  absurd  and  illogical  for  the 
companies  to  claim  that  in  order  to  remain  solvent  tliey  must 
be  permitted  to  eliminate-  competition  as  to  premium  rates 
while  they  continue  in  the  most  strenuous  competition  as  to 
everything  else  in  their  business.  This  competition  as  to 
everything  excepting  rates  means  much  useless,  costly  duplica- 
tion of  officers,  agencies,  etc.,  which  necessarily  causes  con- 
tinually increasing  expense  to  be  added  to  the  heavy  burdens 
of  the  policy  holders.  They  do  not  seek  to  avoid  this,  but  only 
to  escape  competition  in  rates  which  would  tend  to  lighten  the 
burdens  of  the  policy  holders.  If  any  business  can  be  suc- 
cessfully operated  only  as  a  monopoly,  then  it  is  time  for  the 
People,  through  their  governmental  institutions,  either  to 
effectively  control  or  to  take  over  and  themselves  operate  such 
business.  Only  by  so  doing,  can  they  escape  extortion  and 
robbery  and  be  able  to  enjoy  the  pleasures  and  benefits  of 
modern  civilization.  The  argument  for  monopoly  in  the  fire 
insurance  business  is  only  the  selfish  plea  of  those  who,  having 
wrung  enormous  profits  out  of  the  necessities  of  the  People,  are 
fighting  for  permission  to  continue  to  do  so.  Their  attitude  is 
the  same  everywhere.  Alglave  .says:  (Assurance  Contre  L' 
Incendie,  Service  Public,  En  Allemagne,  p.  LIV.) 

"Let  us  not  forget  that  they  (the  insurance  com- 
panies) are  not  philanthropists,  but  dealers  who  seek 
to  sell  their  merchandise  at  the  highest  prices  that  are 
possible." 

BENEFITS  OF  INSURANCE. 

In  conclusion,  I  <io  not  think  it  necessary  to  enter  upon 
any  extended  exposition  or  eulogy  of  the  benefits  of  insurance 
if  it  is  conducted  on  correct  principles,  and  with  the  aim  of 
benefiting  the  People  as  a  Avhole  instead  of  affording  monopo- 
lists a  means  of  collecting  tribute.  Insurance  is  essentially  an 
institution  for  expressing  effectively  under  modern  conditions 
the  sympathy  and  aid  of  human  fraternity.  It  is  the  visible 
and  mercif\il  embodiment  of  the  spirit  of  brotherhood  of  all 
men.  Adopting  the  words  of  a  recent  writer,  we  may  consider 
this  great  institution  says  to  mankind : 

"Fire  and  flood,  lightning  and  tornado,  will,  un- 
less my  shield  is  over  you,  inevitably  l)rino  misfortune 
and  disaster  to  many,  but  dismiss  your  fears  and 
anxiety  and  pursue  your  vocations  with  courage  and 
perseverance,  for,  if  these  things  should  perchance  be 
allotted  to  you  by  the  inscrutable  decrees  of  fate,  never- 


72 

theless  I  will  surely  protect  you.  Your  riches  and  your 
happiness  shall  not  be  diminished,  for  I  will  replace 
your  losses.  Rely  on  me  and  the  dangers  of  the  air, 
the  sea  and  the  land  shall  cease  to  exist  for  you.  Under 
my  protection  you  shall  live  your  allotted  days  in 
peace  of  mind,  and  when  the  final  summons  comes,  as 
come  it  must  to  each,  you  shall  depart  consoled  by  the 
thought  that  your  loved  ones  are  not  exposed  to  sudden 
disaster  nor  liable  to  the  miseries  of  poverty  and  the 
pangs  of  hunger." 

Selfish  and  greedy  men  have  seized  and'  made  a  monopoly 
of  this  beneficent  institution  so  that,  to  realize  its  benefits, 
the  People  are  obliged  to  pay  heavy  tribute  to  them.  This  is  a 
great  wrong.  It  should  not  be  possible  for  such  a  heavy  price 
to  be  exacted  by  the  mere  middlemen  who  collect  and  dispense 
insurance.  It  should  be  conducted  at  cost,  but  this  can  only 
be  done  by  the  People  themselves  through  their  governmental 
institution,  the  State. 

SUMMARY. 

The  important  facts  which  stand  out  in  bold  relief  as  a 
general  result  of  my  investigation  of  the  fire  conditions  in 
Illinois  are:  premium  rates,  especially  on  dwellings,  are  ex- 
cessive and  discriminatory;  Chicago  being  particularly  sub- 
jected to  insurance  extortion ;  this  is  so  because  there  exist  three 
insurance  ''Combines"  in  Illinois,  which  fix  rates  and  prevent 
competition.  An  insurance  "Combine"  is  illegal  and  the 
courts  in  Illinois  have  so  decided.  The  People  of  the  State  of 
Illinois,  as  shown  by  complaints  continually  received  by  this 
Department,  are  becoming  aroused,  and  demand,  and  should 
have,  immediate  relief.  Complete  relief  can  only  be  secured  by 
establishing  a  system  of  State  fire  insurance  which  will  afford 
great,  immediate  reduction  in  rates  and  ultimately  reduce  rates 
to  near  to  the  European  State  Insurance  rates,  which  are  only 
one-ninth  of  those  in  force  here.  The  People  of  the  State  of 
Illinois  are  as  much  entitled  to  fire  insurance  at  cost  as  the 
citizens  of  Switzerland,  Germany,  Norway,  or  New  Zealand, 
and  are  as  capable  of  carrying  on  a  system  of  fire  insurance  as 
are  the  citizens  of  those  nations.  There  is  no  constitutional  or 
other  reason,  whatever,  why  Illinois  should  not  enjoy  the. bene- 
fits of  State  fire  insurance,  except  the  clamor  of  the  already 
enormously  rich  companies  against  giving  up  the  "Good 
Thing"  they  have  enjoyed  in  the  past.  When  they  entered 
into  a  monopolistic  "Combine"  they  forfeited  any  claim  to 
consideration,  and  the  People  of  the  State  of  Illinois  should 


take  steps  to  provide  themselves  with  fire  insurance  protection 
at  cost,  without  any  thought  of  the  effect  on  the  fire  insurance 
companies. 

CONTINUATION  OF  OUR  EFFORTS  FOR  REFORM 
NECESSARY. 

It  was  at  your  direction  that  I  began  this  investigation. 
You  have  carefully  followed  its  progress,  and  continuously  as- 
sisted with  your  advice  and  co-operation.  You  have  mani- 
fested a  deep  interest  in  fire  insurance  conditions  existing  in 
our  State  and  their  effect  upon  the  public  welfare,  and  the  re- 
form which  is  certain  to  be  brought  about  in  this  business  will 
only  be  the  legitimate  fruit  of  your  courage  and  initiative.  The 
results  obtained  and  disclosures  made  by  this  investigation 
show  that  your  original  apprehension  was  well  founded  that  the 
citizens  of  Illinois  were  being  charged  excessive  premium  rates 
by  the  stock  fire  insurance  corporations  upon  practically  every 
class  of  property,  and  especially  in  the  case  of  dwelling  houses 
and  flats. 

I  also  desire  to  express  my  sincere  personal  thanks  for  the 
cordial  and  efficient  support  which  you  have  at  all  times  given 
me  in  bringing  to  the  surface  the  inner  workings  of  the  gigantic 
fire  insurance  "Combine"  or  "Trust",  which  today  either  di- 
rectly or  indirectly  lays  an  unnecessary  burden  upon  every  citi- 
zen of  this  State.  I  trust  you  may  continue  your  interest  and 
lend  your  influence  for  fire  insurance  reform,  which  can  only 
be  secured  by  a  thorough  revision  of  the  fire  insurance  laws  of 
Illinois.  The  methods  and  practices  of  the  present  "Combine" 
must  be  replaced  by  some  fair  and  equitable  system  of  fire  in- 
surance, and,  when  established,  its  successful  operation  in  the 
face  of  the  bitter  fight  the  "Combine"  is  certain  to  make  will 
require  a  continuation  of  your  strong  support  and  favorable 
influence. 

I  wish  to  say  further,  that  I  am  greatly  indebted  to  the 
Illinois  Press  Association,  and  particularly  their  Insurance 
Committee,  for  the  cordial  support  and  assistance  they  have 
given  mo  in  this  investigation,  and  confidently  rely  upon  their 
further  efforts  in  disseminating  information  and  educating  the 
People  for  the  achievement  of  this  reform,  through  safe  and 
proper  legislation. 

The  agitation  for  reform  in  the  insurance  business  has  just 
started.  The  immense  majority  of  the  citizens  of  the  State  of 
Illinois  are  ignorant  of  the  true  facts  in  the  case.     They  feel 


74 

that  they  are  suffering  from  a  great  burden,  but  they  do  not 
know  that  this  is  mostly  for  the  benefit  of  monopolists.  The 
People  must  investigate  the  facts  in  the  case  :  they  must  educate 
themselves  and  take  an  intelligent  and  intense  interest  in  the 
matter.  Under  our  Democratic  system  of  government,  relief 
from  oppressive  conditions  must  come  from  the  People  them- 
selves, and  it  is  to  contribute  to  their  education  and  enlighten- 
ment as  to  fire  insurance  and  promote  their  welfare  and  happi- 
ness by  showing  them  how  their  present  indefensible  insurance 
burdens  may  be  lightened  that  I  submit  the  facts  and  sugges- 
tions of  this  report. 

Respectfully, 

RUFUS  M.  POTTS,, 
Insurance  Superintendent. 
November  19,  1914. 

Note: — Since  the  filing  of  this  Report,  the  companies  have  at  last, 
on  November  23,  1914,  presented  an  answer  to  my  Preliminary  Report 
made  to  Your  Excellency  on  May  6,  1914.  In  this  answer,  the  com- 
panies deny  the  existence  of  any  combination  for  the  purpose  of  con- 
trolling fire  insurance  rates;  they  disclaim  responsibility  for  the  opera- 
tions of  the  Chicago  Board  of  Underwriters,  alleging  that  this  is  an 
organization  of  Chicago  local  agents;  and  also  claim  that  they  are  not 
able  to  grant  a  reduction  in  the  premium  rates.  Their  allegations  all 
relate  to  matters  of  fact  which  are  fully  covered  with  ample  evidence 
to  substantiate  my  statement  thereof  in  this  Report.  Nothing  con- 
tained in  their  answer  warrants  me  in  modifying  in  the  least  the  con- 
clusions and  recommendations  made  herein. 


to 


APPENDIX  A. 

ABSTRACT  OF  REPORT  OF  HERMAN  L.  EKERN,  INSUR- 
ANCE   COMMISSIONER    OF   WISCONSIN. 

That  the  tax  to  Wisconsiu  policy  holclei's  froni  lire  insur- 
ance premiums  paid  by  them  to  the  stock  fire  insurance  cor- 
porations in  the  last  ten  years  was  nearly  three  times  the  direct 
State  tax  for  the  same  period,  is  the  important  statement  in 
the  forthcoming  report  of  State  Insurance  Commissioner,  Her- 
man L.  Ekern,  in  discussing  fire  insurance  rates  in  "Wisconsin. 

Mr.  Ekern  also  states  that:  "The  stock  companies'  fire 
losses  were  1  1-5  times  the  State  tax.  The  stock  companies' 
expense  and  profits  were  1  2-3  times  the  State  tax.  This  fire 
premium  tax  is  largely  unnecessary.  The  losses  are  too  large, 
the  expenses  are  excessive,  and,  as  compared  with  other  states 
and  with  the  entire  United  States,  the  stock  insurance  corpora- 
tions are  overcharging  the  people  of  Wisconsin." 

In  his  report,  Mr.  Ekern  states  that  the  people  of  Wis- 
consin have  paid  to  the  stock  fire  insurance  corporations  from 
1904  to  1913,  in  net  premiums,  $68,065,042,  and  have  received 
in  return  for  losses  $29,152,025,  or  $42.80  per  $100  in  premiums. 
Four  stock  companies,  located  in  Wisconsin,  collected  in  net 
premiums  $5,344,399,  and  paid  in  losses  $1,599,964,  or  $29.90 
for  each  $100  in  premiums. 

"The  stock  corporations  have  thus  collected  from  the 
people  of  Wisconsin  $38,913,017  more  than  they  have  returned. 
Deducting  the  increase  in  reserve  liabilities,  the  amount  taken 
in  ten  years  from  the  people  of  Wisconsin  for  expenses  and 
profits  is  $37,600,000,"  continues  the  report. 

"During  the  same  period  the  mutual  companies  doing  a 
general  business  in  Wisconsin  collected  in  net  premiums 
$6,138,062,  or  $55.50  out  of  each  $100  of  premiums  collected. 
The  farmers'  town  mutual  companies  collected  $7,129,954,  and 
paid  back  in  losses  $5,829,694,  or  $81.80  for  each  $100  collected 
in  premiums. 

The  report  further  states  that  the  .same  companies,  during 
the  same  period,  returned  in  los.ses  throughout  the  United 
States  $56.30  per  $100  of  premiums,  and  for  the  nine  years, 
omitting  the  San  Francisco  conflagration  in  the  year  1906,  they 


76 

returned  $52.10  per  $100  of  premiums  throughout  the  United 
States. 

Discussing  conflagrations  he  says  "That,  notwithstanding 
the  $150,000,000  paid  on  account  of  the  San  Francisco  earth- 
quake and  conflagration,  "the  state  of  California  has  in  34 
years,  from  1880  to  1913,  paid  to  the  stock  fire  insurance  cor- 
porations more  money  than  it  has  received  in  return  for  losses. 
The  total  premiums  for  the  period  are  $274,654,276,  and  the 
losses  $246,195,714,  or  90%  of  the  premiums.  The  State  has 
thus  not  alone  paid  all  its  own  losses,  but  has  paid  enough  to 
cover  the  expense  of  a  business  conducted  with  an  economy  a 
little  more  than  equal  to  that  of  the  Wisconsin  farmers'  mu- 
tuals. 

Discussing  the  excessive  Wisconsin  cost  to  policy  holders, 
the  report  states  that  during  the  ten  year  period  it  has  cost 
$234  in  net  premiums  paid  to  the  stock  corporations  by  Wis- 
consin policy  holders  to  pay  $100  in  losses,  against  the  $177.60 
collected  by  the  same  companies  from  policy  holders  through- 
out the  United  States.  It  has  cost  $180  in  mutual  companies, 
and  $122  in  the  farmers'  town  mutuals  for  each  $100  paid  in 
losses,  against  $334  in  premiums  paid  Wisconsin  stock  com- 
panies for  each  $100  of  Wisconsin  losses  paid.  The  stock  com- 
panies collected  83%  of  the  net  Wisconsin  premiums  and  paid 
75%  of  the  total  Wisconsin  losses.  Attention  is  called  to  Ver- 
mont, where,  during  1913,  the  home  mutual  companies  col- 
lected 42%  of  the  premiums  and  paid  52%  of  the  losses. 

Tables  are  given  showing  the  rate  of  loss  per  $100  for  each 
of  the  ten  years  for  each  class  of  companies. 

After  stating  that  the  overcharge  for  the  ten  years  to  Wis- 
consin policy  holders,  as  compared  with  the  rest  of  the  country, 
has  been  24%  and  16%  for  the  last  five  years,  28%  for  1912, 
and  36%  for  1913;  Mr.  Ekern  concludes:  "Whether  the  over- 
charge may  be  reckoned  at  the  $1,500,000  per  year  for  the  ten 
year  average,  or  $1,100,000  per  year  for  the  five  year  average, 
or  $2,000,000  for  1912,  or  $2,600,000  for  1913,  it  is  apparent 
that  Wisconsin  is  a  very  profitable  State  to  the  stock  fire  in- 
surance corporations." 

The  report  further  states  that  losses  in  Wisconsin  have 
been,  and  will  be,  very  considerably  reduced  by  the  advanced 
fire  prevention  work,  now  being  done  under  the  laws  resulting 
from  the  recommendations  of  the  legislative  fire  insurance  in- 
vestigating committee  of  1912.     He  states  that  the  reductions 


77 

iu  premiums  have  not  kept  pace  with  the  reductions  in  losses, 
and  that  to  maintain  public  interest  in  this  work  there  must 
be  corresponding  reductions  in  rates.  Commenting  on  the 
recommendations  of  this  committee  for  regulation  of  fire  rates, 
he  says : 

'"These  recommendations  of  the  investigating  committee 
were  defeated,  antl  there  is  now  no  authority  under  the  law 
for  the  regulation  of  the  rates  of  fire  insurance  companies,  or 
for  an  inquiry  into  such  rates,  except  such  as  may  be  made  by 
the  commissioner  of  insurance,  under  the  authority  given  to 
him  to  make  recommendations  for  legislation.  Such  laws  for 
inciuiry  into  and  the  regulation  of  fire  insurance  rates  are 
absolutely  necessary.  This  is  one  of  tlie  big  problems  in  Wis- 
consin." 


APPENDIX  B. 


NOTE: — The  following  decision  of  the  United  States  Su- 
preme Court  is  of  as  fundamental  importance  in  relation  to  fire 
insurance  as  the  Dartmouth  case  was  in  relation  to  corpora- 
tions, the  Dred  Scott  case  in  relation  to  slavery  or  the  case  of 
IMunn  vs.  Illinois  in  relation  to  power  of  the  State  to  control 
railroad  rates.  First  is  given,  in  smaller  type,  the  statement  of 
the  facts  of  the  case  made  by  the  court,  followed  in  larger  type 
by  the  decision  of  the  court  giving  the  law  as  applied  to  the 
facts.  In  this  decision  certain  parts,  containing  the  most  im- 
portant principles,  are  printed  in  black-face  type.  Any  one 
who  does  not  have  time  to  read  the  whole  decision  can  get  a 
good  idea  of  the  law  as  laid  down  by  the  Supreme  Court  in  the 
decision  from  reading  these  black-face  passages. 

SUPREME   COURT   OF  THE  UNITED   STATES. 
No.   120.— October  Term,   1913. 
German  Alliance  Insurance  Company,        \ 

Appellant,  /    Appeal     from     the     Circuit 
vs.  Court      of      the      United 

r,      T-  c  ■    ^-      A     4.     f  -r  {         States    for     the    District 

Ike  Lewis,  as  Superintendent  of  Insur-     \  „    ^, 

of    Kansas, 
ance  of  the  State  of  Kansas.  ' 

(April   20,   1914.) 

Bill  in  equity  to  restrain  the  enforcement  of  the  provisions  of  an  act 
of  the  State  of  Kansas  entitled  "An  Act  relating  to  Fire  Insurance  and 
to  provide  for  the  Regulation  and  Control  of  rates  of  Premium  Thereon 
and  to  Prevent  Discriminations  Therein."  Chap.  152  of  the  Sessions 
Laws  of  1909. 

The  grounds  of  the  bill  are  that  the  act  offends  the  Constitution  of 
the  State  and  of  the  United  States. 

A  summary  of  the  requirements  of  the  act  is  as  follows: 

Sec.  1.  Every  fire  insurance  company  shall  file  with  the  superin- 
tendent of  insurance  general  basis  schedules  showing  the  rates  on  all 
risks  insurable  by  such  company  in  the  State  and  all  the  conditions  which 
affect  the  rates  or  the  value  of  the  insurance  to  the  assured. 

Sec.  2.  No  change  shall  be  made  in  the  schedules  except  after  ten 
days'  notice  to  the  superintendent,  which  notice  shall  state  the  changes 
proposed  and  the  time  when  they  shall  go  into  effect.  The  superintend- 
ent may  allow  changes  upon  less  notice. 

Sec.  3.  When  the  superintendent  shall  determine  any  rate  is  ex- 
cessive or  unreasonably  high  or  not  adequate  to  the  safety  or  soundness 
of  the  company,  he  is  authorized  to  direct  the  company  to  publish  and 
file  a  higher  or  a  lower  rate,  which  shall  be  commensurate  with  the  char- 
acter of  the  risk;  but  in  every  case  the  rate  shall  be  reasonable. 

Sec.  4.  No  company  shall  engage  or  participate  in  insurance  on 
property  located  in  the  State  until  the  schedules  of  rates  be  filed  nor 
write  insurance  at  a  different  rate  than  the  rate  named  in  the  schedules, 
or  refund  or  remit  in  any  manner  or  by  any  device  any  portion  of  the 


\ 


79 

rates;  or  extend  to  any  insured  or  other  person  nny  privileges,  induce- 
ments or  concessions  except  as  specified  in  the  schedules. 

Sec.  5.  Any  company  making  insurance  where  no  rate  has  been 
filed  shall,  within  thirty  days  after  entering  into  such  contract,  tile  with 
the  superintendent  a  schedule  of  such  property  showing  the  rate  and 
such  information  as  he  may  require.  The  schedule  shall  conform  to  the 
general  basis  of  schedules  and  shall  constitute  the  permanent  rate  of  the 
company. 

Sec.  6.  The  schedules  shall  be  open  to  the  inspection  of  the  public, 
and  each  local  agent  shall  have  and  exhibit  to  the  public  copies  thereftf 
relative  to  all  risks  upon  which  he  is  authorized  to  write  insurance. 

Sec.  7.  No  company  shall  directly  or  indirectly,  by  any  special  rate 
or  by  any  device,  charge  or  receive  from  any  person  a  different  rate  of 
compensation  for  Insurance  than  it  charges  or  receives  from  any  other 
person  for  like  insurance  or  risks  of  a  like  kind  and  hazard  under  similar 
circumstances  and  conditions  in  the  State.  Any  company  violating  this 
provision  shall  be  deemed  guilty  of  unjust  discrimination,  which  is  de- 
clared unlawful. 

Sec.  S.  The  superintendent  may,  if  he  finds  that  any  company,  or 
any  officer,  agent  or  representative  thereof,  has  violated  any  of  the  pro- 
visions of  the  act,  revoke  the  license  of  such  offending  company,  officer, 
or  agent,  but  such  revocation  shall  not  affect  liability  for  the  violation  of 
any  other  section  of  the  act;  and  provided  that  any  action,  decision  or 
determination  of  the  superintendent  under  the  provisions  of  the  act  shall 
be  subject  to  review  by  the  courts  of  the  State  as  provided  in  the  act. 

Sec.  9.  The  superintendent  shall  give  notice  of  any  order  or  regu- 
lation made  by  him  under  the  act,  and  any  company,  or  any  person,  city 
or  municipality  which  shall  be  Interested,  shall  have  the  right  within 
thirty  days  to  bring  an  action  against  the  superintendent  in  any  district 
court  of  the  State  to  have  the  order  or  regulation  vacated.  Issues  shall 
be  formed  and  the  controversy  tried  and  determined  as  in  other  cases  of 
a  civil  nature,  and  the  court  may  set  aside  one  or  more  or  any  part  pf 
any  of  the  regulations  or  orders  which  the  court  shall  find  to  be  unrea- 
sonable, unjust,  excessive  or  Inadequate  to  compensate  the  company 
writing  Insurance  thereon  for  the  risk  assumed  by  it,  without  disturbing 
others.  The  order  of  the  superintendent  shall  not  be  suspended  or  en- 
Joined,  but  the  court  may  permit  the  complaining  company  to  write  In- 
surance at  the  rates  which  obtained  prior  to  such  order  upon  the 
condition  that  the  difference  In  the  rates  shall  be  deposited  with  the 
superintendent  to  be  paid  to  the  company  or  to  the  holders  of  policies 
as,  on  final  determination  of  the  suit,  the  court  may  deem  just  and 
reasonable.  During  the  pendency  of  the  suit  no  penalties  or  forfeitures 
shall  attach  or  accrue  on  account  of  the  failure  of  the  complainant  to 
comply  with  the  order  sought  to  be  vacated  or  modified  until  the  final 
determination  of  the  suit.  Proceedings  In  error  may  be  Instituted  in  the 
Supreme  Court  of  the  State  as  in  other  civil  cases,  and  that  court  shall 
examine  the  record.  Including  the  evidence,  and  render  such  judgment  as 
shall  be  just  and  equitable.  N'o  action  shall  be  brought  In  the  United 
States  courts  until  the  remedies  provided  by  the  act  shall  have  been  ex- 
hausted. If  any  company  organized  under  the  laws  of  the  State  or 
authorized  to  transact  business  in  the  State  shall  violate  the  section,  the 
superintendent  may  cancel  the  authority  of  the  company  to  transact 
business  In  the  State. 

Sec.  10.  Infractions  of  the  act  are  declared  to  be  misdemeanors  and 
punishable  by  a  fine  not  exceeding  $100  for  each  offense,  provided  that  If 
the  conviction  be  for  an  unlawful  discrimination  the  punishment  may  be 
by  a  fine  or  by  Imprisonment  In  the  county  Jail  not  exceeding  ninety 
days,  or  by  both  fine  and  Imprisonment. 

Sec.  11.  No  person  shall  be  excused  from  testifying  at  the  trial  of 
any  other  person  on  the  ground  that  the  testimony  may  Incriminate  him, 
but  he  shall  not  be  prosecuted  on  account  of  any  transaction  about 
which   he   may   testify,   except   for   perjury   committed   In   so   testifying; 


80 

"provided,  that  nothing  in  this  act  shall  affect  farmers'  mutual  insurance 
companies,  organized  and  doing  business  under  the  laws  of  this  State 
and  insuring  only  farm  property." 

The  bill  alleged  that  it  was  brought  by  the  German  Alliance  Insur- 
ance Company  in  behalf  of  itself  and  all  other  companies  and  corpor- 
ations conducting  a  similar  business  and  similarly  situated,  and  that 
Charles  W.  Barnes  was  the  duly  elected  superintendent  of  fire  insurance 
of  the  State  of  Kansas.  It  alleged  .the  jurisdictional  amount,  and  that 
the  controversy  was  one  arising  under  the  Constitution  of  the  United 
States  and  of  the  State  of  Kansas.  It  alleged,  further,  the  following 
facts,  which  we  state  in  narrative  form,  omitting  those  which  relate  to 
the  constitution  of  the  State,  no  assignment  of  error  being  based  upon 
them:  The  appellant,  to  which  we  shall  refer  as  complainant,  w'as  in- 
corporated under  the  laws  of  New  York  as  a  fire  insurance  company  in 
1879  and  immediately  entered  upon  such  business,  and  it  has  for  long 
periods  of  time  conducted  the  business  of  fire  insurance  in  Kansas  and 
other  States  of  the  United  States. 

The  business  of  fire  insurance  as  conducted  by  it  consists  of  making 
indemnity  contracts  against  direct  loss  or  damage  by  fire  for  a  consider- 
ation paid,  known  as  a  premium;  that  the  rate  or  premium  is  the  amount 
charged  for  each  $100  of  indemnity.  The  property  which  is  the  subject 
of  insurance  is  ordinarily  known  and  designated  as  the  risk.  Complain- 
ant issues  indemnity  contracts  or  fire  insurance  policies  covering  all 
kinds  and  descriptions  of  improvements  upon  real  estate  and  the  con- 
tents thereof  and  all  kinds  and  descriptions  of  personal  property  and 
also  farm  houses,  barns  and  granaries  and  their  contents.  The  rate  of 
premium  varies  with  the  kind  of  property  covered,  its  physical  character- 
istics and  situation,  its  exposure,  the  presence  or  absence  of  fire  protec- 
tion, and  many  other  causes. 

The  establishment  of  the  basis  rate  for  the  premium  to  be  charged 
is  a  matter  of  technical  and  mathematical  deduction  from  the  experience 
of  all  fire  insurance  companies  covering  a  long  period  of  years  and, 
territorially,  the  whole  civilized  world.  To  make  such  deduction  it  is 
necessary  not  only  to  be  in  possession  of  the  compiled  statistics  of  fire 
insurance  business,  but  also  to  be  skilled  in  the  mathematical  "theory 
of  probabilities"  and  in  the  "law  of  large  num.bers"  so  as  to  be  able  to 
apply  with  technical  accuracy  such  laws  and  such  data,  and  that  no  one 
not  specially  trained  as  an  insurance  statistician  is  competent  to  make 
such  deductions. 

A  theoretically  correct  basis  rate  having  thus  been  arrived  at  is  sub- 
ject to  variation  according  to  the  risk,  whether  in  town  or  country,  and, 
if  in  the  former,  according  to  the  class  of  town  or  city  in  which  it  is 
situated.  The  classification  of  towns  and  cities  depends  upon  water 
supply,  fire  protection  and  general  physical  conditions.  In  addition  to 
ascertaining  the  individual  risk,  if  a  building,  the  size,  material  of  which 
and  the  manner  in  which  it  is  constructed,  the  character  of  the  occu- 
pancy, and  the  character  of  the  occupancy  and  construction  of  adjacent 
buildings,  also  the  character  of  the  contents  of  the  buildings  and  the 
manner  in  which  they  are  stored  and  the  precautions  used  to  detect  and 
prevent  fires,  are  necessary  to  be  ascertained. 

Complainant  and  others  engaged  in  the  insurance  business  employ 
a  large  number  of  men  skilled  as  inspectors  to  report  upon  individual 
risks,  and  it  is  impossible  to  fix  and  adjust  a  reasonable  rate  of  premium 
for  each  and  every  individual  risk  without  the  information  so  obtained 
and  having  the  same  applied  by  experts.  And  such  training  and  infor- 
mation are  necessary  to  determine  whether  a  basic  rate  or  actual  rate 
as  applied  to  any  particular  risk  is  or  is  not  reasonable,  and  the  re- 
spondent is  not  possessed  of  the  requisite  information  or  special  train- 
ing necessary  to  qualify  for  such  determination  and  any  conclusion  to 
which  he  might  come  would  be  a  mere  guess  or  arbitrary  determination; 
and  the  provisions  of  the  act  can  only  be  properly  administered  in  any 
event  by  the  employment  by  the  State  of  a  corps  of  inspectors  and  ex- 
perts specially  trained  in  the  business  of  fixing  rates  of  fire  insurance. 


81 

The  loniplainant  has  complied  with  all  of  the  laws  of  the  State  and 
has  received  the  regular  license  or  authorization  of  the  State,  to  trans- 
act the  business  of  fire  insurance  therein. 

It  conducts  its  business  by  means  of  resident  agents,  of  which  it  has 
seventy-two  directly  employed;  it  has  a  large  and  valuable  established 
business  to  secure  which  it  has  expended  a  large  sum  of  money,  and  to 
be  compelled  to  give  up  its  business  would  result  in  irreparable  damage 
and  injury  to  it.  A  large  number  of  the  tire  insurance  policies  issued 
by  complainant  are  written  upon  farm  buildings  and  their  contents  and 
in  writing  such  business  it  comes  into  direct  competition  with  various 
farmers'  mutual  insurance  companies  organized  and  doing  business  under 
the  laws  of  the  State  and  insuring  only  farm  property. 

The  business  of  fire  insurance  is  purely  and  exclusively  a  private 
business  and  may  be  transacted  by  private  persons  in  their  individual 
capacity  or  by  unincorporated  or  incorporated  companies,  that  the 
amount  of  Indemnity  and  the  premium  is  a  matter  of  private  negotiation 
and  agreement,  and  the  act  of  the  legislature  of  the  State  of  Kansas  at- 
tempts to  regulate  the  business  in  so  far  as  the  fixing  of  the  rate  of 
premium  Is  concerned  and  in  the  attempted  regulation  distinguishes  be- 
tween fire  insurance  companies  and  individuals  and  partnerships,  and 
thereby  denies  to  complainant  and  other  companies  the  equal  protection 
of  the  law,  contrary  to  the  Fourteenth  Amendment  to  the  Constitution 
of  the  United  States,  and  Is  therefore  unconstitutional  and  void. 

I'nder  the  laws  of  Kansas,  mutual  fire  insurance  companies  may  be 
organized,  that  such  companies  having  a  guaranteed  fund  of  $25,000 
may  do  business  on  a  cash  basis  and  accept  premiums  in  cash  and  that 
such  premium  measures  the  total  liability  of  the  insured  under  the  policy 
either  to  the  company  or  to  Its  creditors;  that,  by  the  11th  section  of  the 
act  under  review,  it  Is  provided  "that  nothing  In  this  act  shall  affect 
farmers'  mutual  Insurance  companies,  organized  and  doing  business 
under  the  laws  of  this  State,  and  insuring  only  farm  property."  The 
complainant  and  many  other  companies  insure  farm  property  and  come 
into  direct  competition  with  farmers'  mutual  companies  of  the  character 
specified  and  the  act  of  the  legislature  In  excepting  the  latter  companies 
deprives  complainant  of  the  equal  protection  of  the  laws  and  is  there- 
fore repugnant  to  the  Fourteenth  Amendment  of  the  Constitution  of  the 
United  States  and  is  unconstitutional  and  void. 

The  business  of  fire  Insurance  is  private,  with  which  the  State  has 
no  right  to  Interfere,  and  the  right  to  fix  by  private  contract  the  rate  of 
premium  Is  a  property  right  of  value;  the  business  Is  not  a  monopoly 
either  legally  or  actually.  It  may  not  be  legally  conducted  by  the  National 
Government  or  by  the  State  of  Kansas  or  other  States  under  their  re- 
spective constitutions,  and  Is  not  a  business  Included  within  the  func- 
tions of  government.  Neither  complainant  nor  others  engaged  in  fire 
insurance  receive  or  enjoy  from  the  State  of  Kansas  or  any  government. 
State  or  National,  any  privilege  or  Immunity  not  in  like  manner  and  to 
like  extent  received  and  enjoyed  by  all  other  persons,  partnerships  and 
companies.  Incorporated  or  unincorporated,  respectively,  engaged  In  the 
conduct  of  other  lines  of  private  business  and  enterprises.  Complainant, 
therefore,  is  deprived  of  one  of  the  Incidents  of  liberty  and  of  its  prop- 
erty without  due  process  of  law,  in  violation  of  the  Fourteenth  Amend- 
ment to  the  Constitution  of  the  United  States. 

The  act  distinguishes  between  fire  Insurance  companies  and  other 
Insurance  companies.  Individuals  and  persons  and  dl.stlngulshes  between 
Insurance  and  other  lines  of  business  and  thereby  offends  the  equality 
clause  of  the  Constitution  of  the  United  States. 

Complainant,  under  protest,  filed  the  general  basis  schedules  of  Its 
rates  as  required  by  the  act,  which  were  arrived  at  by  the  process  here- 
inbefore set  out.  On  the  19th  of  August.  1909,  respondent  made  a  re- 
duction of  12 <^  from  the  rates  as  filed  and  from  the  rates  filed  by  other 
companies,  with  the  proviso  that  It  should  not  apply  to  residence  prop- 
erty, churches,  school  houses,  farm  property  or  special  hazards.       The 


82 

order  was  to  become  .effective  September  1,  1909.  And  it  was  further 
odered  that  on  and  after  that  date  the  exceptions  of  churches  and  dwell- 
ing houses  should  be  eliminated.  Complainant  notified  the  superintend- 
ent by  letter  that  it  would,  under  protest,  and  reserving  the  rights  which 
it  had  under  the  law,  comply  with  the  provisions -of  the  order. 

The  risks  included  in  the  order,  and  not  excepted  therefrom,  com- 
prise all  ordinary  mercantile  risks  in  the  State  and  that  the  reduction  of 
12%  will  result  in  a  rate  which  is  much  less  than  the  cost  of  carrying  the 
risks. 

Respondent  is  threatening  to  make  further  reductions  and  it  is  pro- 
xjosed  to  revoke  the  license  of  any  fire  insurance  company  which  may 
violate  the  provisions  of  the  act,  even  though  the  rates  fixed  by  him  may 
be  so  low  as  to  be  confiscatory  and  to  inflict  upon  the  officers  of  the  com- 
pany, including  complainant,  the  penalties  prescribed  for  such  violation, 
and  such  com'panies  and  complainant,  unless  defendant  be  restrained  by 
injunction,  will  be  obliged  to  comply  with  the  requirements  of  the  act  to 
their  irreparable  damage  and  injury. 

Complainant  finally  alleges  that  it  is  not  its  purpose  to  attack  the 
orders  of  respondent  on  the  ground  that  they  were  not  made  in  strict 
compliance  with  the  provisions  of  the  act,  but  to  have  the  act  in  its  en- 
tirety declared  to  be  unconstitutional  and  void  for  the  reasons  alleged, 
and  to  have  respondent  restrained  and  orders  made  by  him  under  the 
provisions  of  the  act  enjoined.     And  such  an  injunction  is  prayed. 

Respondent  filed  a  demurrer  stating  that  he  demurred  to  so  much  of 
the  bill  as  charges  the  act  of  the  State  of  Kansas  to  be  repugnant  to  the 
constitution  of  Kansas  and  the  Constitution  of  the  United  States.  The 
demurrer  w^as  sustained.  Subsequently,  upon  the  bill  being  amended,  a 
general  demurrer  was  filed,  which  was  also  sustained  by  the  court,  and 
the  bill  dismissed.  Prior,  however,  to  this  action,  it  having  been  sug- 
gested that  the  term  of  office  of  Charles  W.  Barnes  as  superintendent  of 
insurance  had  expired  and  that  Ike  Lewis  had  succeeded  to  that  office 
and  to  all  of  its  duties  and  powers,  he  was  made  defendant  in  the  place 
and  stead  of  Charles  W.  Barnes. 

After  stating  the  case  as  above,  Mr.  Justice  McKenna  de- 
livered the  opinion  of  the  Court. 

The  specific  error  complained  of  is  the  refusal  of  the  dis- 
trict court  to  hold  that  the  act  of  the  State  of  Kansas  is  un- 
constitutional and  void  as  offending  the  due  process  clause  of 
the  Fourteenth  Amendment  of  the  Constitution  of  the  United 
States.  To  support  this  charge  of  error,  complainant  asserts 
that  the  business  of  fire  insurance  is  a  private  business  and, 
therefore,  there  is  no  constitutional  power  in  a  State  to  fix  the 
rates  and  charges  for  services  rendered  by  it.  An  exercise  of 
such  right,  it  is  contended,  is  a  taking  of  private  property  for 
a  public  use.  The  contention  is  made  in  various  ways  and, 
excluding  possible  countervailing  contentions,  it  is  urged  that 
the  act  under  review  cannot  be  justified  as  an  exercise  of  the 
police  power  or  of  the  power  of  the  State  to  admit  foreign  cor- 
porations within  its  borders  upon  such  terms  as  it  may  pre- 
scribe, or  of  any  other  power  possessed  by  the  State ;  that  no 
State  has  the  power  to  impose  unconstitutional  burdens  either 
upon  private  citizens  or  private  corporations  engaged  in  a 
private  business. 


83 

The  basic  contention  is  that  the  business  of  insurance  is  a 
natural  right,  receiving  no  privilege  from  the  State,  is  volun- 
tarily entered  into,  cannot  be  compelled  nor  can  any  of  its 
exercises  be  compelled ;  that  it  concerns  personal  contracts  of 
indemnity  against  certain  contingencies  merely.  Whether  such 
contracts  shall  bo  made  at  all,  it  is  contended,  is  a  matter  of 
private  negotiation  and  agreement,  and  necessarily  there  must 
be  freedom  in  fixing  their  terms.  And  "where  the  right  to  de- 
mand and  receive  service  docs  not  exist  in  the  public,  the  cor- 
relative right  of  regulation  as  to  rates  and  charges  does  not 
exist."  Many  elements,  it  is  urged,  determine  the  extending 
or  rejection  of  insurance ;  the  hazards  are  relative  and  depend 
upon  many  circumstances  upon  which  there  may  be  different 
judgments,  and  there  are  personal  considerations  as  well — 
"moral  hazards,"  as  they  are  called. 

It  is  not  clear  to  what  extent  some  of  these  circumstances 
are  urged  as  affecting  the  power  of  regulation  in  the  State.  It 
would  seem  to  be  urged  that  each  risk  is  individual  and  no  rule 
of  rates  can  be  formed  or  applied.  The  bill  asserts  the  con- 
trary. It  in  effect  admits  that  there  can  be  standards  and 
classifications  of  risks,  determined  by  the  law  of  averages.  In- 
deed, it  is  a  matter  of  common  knowledge  that  rates  are  fixed 
and  accommodated  to  those  standards  and  classification  in  pre- 
aranged  schedules,  and,  granted  the  rates  may  be  varied  in 
particular  instances,  they  are  sufficiently  definite  and  applicable 
as  a  general  and  practically  con.stant  rule.  They  are  the 
product,  it  is  true,  of  skill  and  experience,  but  such  skill  and 
experience  a  regulating  body  may  have  as  well  as  the  creating 
body.  Indeed,  an  allegation  in  the  original  bill  that  the  super- 
inttndent  of  insurance  could  not  have  the  requisite  technical 
and  mathematical  training  to  determine  whether  a  basic  rate 
or  an  actual  rate  as  applied  to  any  particular  risk  was  or  was 
not  reasonable  and  that  his  conclusion,  therefore,  "would  be  a 
mere  guess  or  arbitrary  dntorminntion"  was  omitted  by  an 
amendment.  It  would  indeed  be  a  strained  contention  that 
the  Government  could  not  avail  itself,  in  the  exercise  of  power 
it  might  deem  wise  to  exert,  of  the  skill  and  knowledge  pos- 
sessed by  the  world.  Wc  may  [)ut  asi<lc^  therefore,  all  irn-rcly 
adventitious  considerations  and  come  to  the  bare  and  essential 
one.  whether  a  contract  of  fire  instirance  is  private  and  as  .such 
has  constitutional  immunity  from  regulation.  Or,  to  state  it 
differently  and  to  express  an  antithetical  proposition,  is  the 
business  of  insurance  so  far  affected  with  a  public  interest  as  to 


84 

justify  legislative  regulation  of  its  rates?  And  we  mean  a  broad 
and  definite  public  interest.  In  some  degree  the  public  interest 
is  concerned  in  every  transaction  between  men,  the  sum  of  the 
transactions  constituting  the  activities  of  life.  But  there  is 
something  more  special  than  this,  something  of  more  definite 
consequence,  which  makes  the  public  interest  that  justifies 
regulatory  legislation.  We  can  best  explain  by  examples. 
The  transportation  of  property — business  of  common  carriers — 
is  obviously  of  public  concern  and  its  regulation  is  an  accepted 
governmental  power.  The  transmission  of  intelligence  is  of 
cognate  character.  There  are  other  utilities  which  are  de- 
nominated public,  such  as  the  furnishing  of  water  and  light, 
including  in  the  latter  gas  and  electricity.  We  do  not  hesitate 
at  their  regulation  nor  at  the  fixing  of  the  prices  which  may  be 
charged  for  their  service.  The  basis  of  the  ready  concession 
of  the  power  of  regulation  is  the  public  interest.  This  is  not 
denied,  but  its  application  to  insurance  is  so  far  denied  as  not 
to  extend  to  the  fixing  of  rates.  It  is  said,  the  State  has  no 
power  to  fix  the  rates  charged  to  the  public  by  either  corpora- 
tions or  individuals  engaged  in  a  private  business,  and  the 
"test  of  whether  the  use  is  public  or  not  is  whether  a  public 
trust  is  imposed  upon  the  property  and  whether  the  public  has 
a  legal  right  to  the  use  which  cannot  be  denied;"  or,  as  we 
have  said,  quoting  counsel,  "Where  the  right  to  demand  and 
receive  service  does  not  exist  in  the  public,  the  correlative  right 
of  regulation  as  to  rates  and  charges  does  not  exist."  Cases 
are  cited  which,  it  must  be  admitted,  support  the  contention. 
The  distinction  is  artificial.  It  is,  indeed,  but  the  assertion 
that  the  cited  examples  embrace  all  cases  of  public  interest. 
The  complainant  explicitly  so  contends,  urging  that  the  test 
it  applies  excludes  the  idea  that  there  can  be  a  public  interest 
which  gives  the  power  of  regulation  as  distinct  from  a  public 
use  which,  necessarily,  it  is  contended,  can  only  apply  to 
property,  not  to  personal  contracts.  The  distinction,  we 
think,  has  no  basis  in  principle.  (Noble  State  Bank  v.  Haskell, 
219  U.  S.  104),  nor  has  the  other  contention  that  the  service 
which  cannot  be  demanded  cannot  be  regulated. 

Munn  V.  Illinois,  94  U.  S.  113,  is  an  instructive  example  of 
legislative  power  exerted  in  the  public  interest.  The  constitu- 
tion of  Illinois  declared  all  elevators  or  storehouses,  where 
grain  or  other  property  was  stored  for  a  compensation,  to  be 
public  warehouses,  and  a  law  was  subsequently  enacted,  fixing 
rates  of  storage.     In  other  words,  that  which  had  been  private 


85 

property  had  from  its  uses  become,  it  was  declared,  of  public 
couceru  and  the  compensation  to  be  charged  for  its  use  pre- 
scribed. The  law  was  sustained  against  the  contention  that  it 
deprived  the  owners  of  the  warehouses  of  their  property  with- 
out due  process  of  law.  We  can  only  cite  the  ease  and  state  its 
principle,  not  review  it  at  any  length.  The  principle  was  ex- 
pressed to  be,  quoting  Lord  Chief  Justice  Hale,  'that  when 
private  property  is  "affected  with  public  interest  it  ceases  to 
be  juris  privati  only"  and  it  becomes  "clothed  with  a  public 
interest  when  used  in  a  manner  to  make  it  of  public  conse- 
quence, and  affect  the  community  at  large";  and,  so  using  it, 
the  owner  "grants  to  the  public  an  interest  in  that  use,  and 
must  submit  to  be  controlled  by  the  public  for  the  common 
good.'  Anil  it  was  said  that  the  application  of  the  principle 
could  not  be  denied  because  no  precedent  could  be  found  for  a 
statute  precisely  like  the  one  reviewed.  It  presented  a  case, 
the  court  further  said,  "for  the  application  of  a  long-'known 
and  well-established  principle  in  social  science,  and  tliis  statute 
simply  extends  the  law  so  as  to  meet  this  new  development  of 
commercial  progress."  The  principle  was  expressed  as  to 
property,  and  the  instance  of  its  application  was  to  property, 
but  it  is  manifestly  broader  than  that  instance.  It  is  the  busi- 
ness that  is  the  fundamental  thing;  property  is  but  its  instru- 
ment, the  means  of  rendering  the  service  which  has  become  of 
public  interest. 

That  the  case  had  broader  application  than  the  use  of 
property  is  manifest  from  the  grounds  expressed  in  the  dis- 
senting opinion.  The  basis  of  the  opinion  was  that  the  busi- 
ness regulated  was  private  and  had  "no  special  privilege  con- 
nected with  it,  nor  did  the  law  ever  extend  to  it  any  greater 
protection  than  it  extended  to  all  other  private  business."  The 
argument  encountered  opposing  examples,  among  others,  the 
regulation  of  the  rate  of  interest  on  money.  The  regulation 
was  accounted  for  on  the  ground  that  the  act  of  Parliament 
permitting  the  charging  of  some  interest  was  a  relaxation  of  a 
prohibition  of  the  comon  law  against  charging  any  interest,  but 
this  explanation  overlooked  the  fact  that  both  the  common  law 
and  the  act  of  Parliament  were  exercises  of  government  regula- 
tion of  a  strictly  private  business  in  the  interest  of  public  policy, 
a  policy  which  still  endures  and  still  dictates  regulating  laws. 
Against  this  conservation  of  the  mind,  which  puts  to  question 
every  new  act  of  regulating  legislation  and  regards  the  legisla- 
tion invalid  or  dangerous  until  it  has  become  familiar,  govern- 


86 

ment — State  and  National — has  pressed  on  in  the  general 
welfare;  and  our  reports  are  full  of  eases  where  in  instance 
after  instance  the  exercise  of  regulation  was  resisted  and  yet 
sustained  against  attacks  asserted  to  be  justified  by  the  Con- 
stitution of  the  United  States.  The  dread  of  the  moment 
having  passed,  no  one  is  now  heard  to  say  that  rights  were  re- 
strained or  their  constitutional  guaranties  impaired. 

Munn  V.  Illinois  was  approved  in  many  state  decisions,  but 
it  was  brought  to  the  review  of  this  court  in  Budd  v.  New  York, 
143  U.  S.  517,  and  its  doctrine,  after  elaborate  consideration, 
re-affirmed,  and  against  the  same  arguments  which  are  now 
urged  against  the  Kansas  Statute.  Nowhere  have  these  argu- 
ments been,  or  could  be,  advanced  with  greater  strength  and 
felicity  of  expression  than  in  the  dissenting  opinion  of  Mr. 
Justice  Brewer.  Every  consideration  w^as  adduced,  based  on 
the  private  character  of  the  business  regulated,  and,  for  that 
reason,  its  constitutional  immunity  from  regulation,  with  all 
the  power  of  argument  and  illustration  of  which  that  great 
judge  was  a  master.  The  considerations  urged  did  not  prevail. 
Against  them  the  court  opposed  the  ever-existing  police  power 
in  government  and  its  necessary  exercise  for  the  public  good 
and  declared  its  entire  accommodation  to  the  limitations  of  the 
Constitution.  The  court  w^as  not  deterred  by  the  charge  (re- 
peated in  the  case  at  bar)  -that  its  decision  had  the  sweeping 
and  dangerous  comprehension  of  subjecting  to  legislative  regu- 
lation all  of  the  business  and  affairs  of  life  and  the  prices  of  all 
commodities.  Whether  we  may  apprehend  such  result  by  ex- 
tending the  principle  of  the  cases  to  fire  insurance  we  shall 
presently  consider. 

In  Brass  v.  Stoesser,  153  U.  S.  391,  Munn  v.  Illinois  and 
Budd  V.  New  York  were  affirmed.  A  law  of  the  state  of  North 
Dakota  was  sustained  which  made  all  buildings,  elevators  and 
warehouses  used  for  the  handling  of  grain  for  a  profit  public 
warehouses,  and  fixed  a  storage  rate.  The  case  is  important. 
It  extended  the  principle  of  the  other  two  cases  and  denuded 
it  of  the  limiting  element  which  was  supposed  to  beset  it — 
that  to  justify  regulation  of  a  business  the  business  must  have 
a  monopolistic  character.  That  distinction  was  pressed  and 
answered.  It  was  argued,  the  court  said,  "that  the  statutes 
of  Illinois  and  Ncav  York  (passed  on  in  the  Munn  and  Budd 
cases)  are  intended  to  operate  in  great  trade  centers,  where, 
on  account  of  the  business  being  localized  in  the  hands  of  a 
few  persons  in  close  proximity  to  each  other,  great  opportu- 


87 

nities  to  raisi'  and  eoutiul  elevating  storage  charges  are  af- 
forded, Avhile  the  ^vide  extent  of  the  State  of  North  Dakota 
and  the  small  population  of  its  country  towns  and  villages  are 
said  to  present  no  such  opportunities. ' '  And  it  was  also  urged 
that  the  method  of  carrying  on  business  in  North  Dakota  and 
the  Eastern  cities  was  ditlerent,  that  the  elevators  in  the  latter 
were  essentially  means  of  transporting  grain  from  the  lakes 
to  the  railroads  and  those  who  owned  them  could,  if  uncon- 
trolled by  law,  extort  such  charges  as  they  pleased,  and  stress 
was  laid  upon  the  expression  in  the  other  cases  which  repre- 
sented the  business  as  a  practical  monopoly.  A  contrast  was 
made  between  those  conditions  and  those  which  existed  in  an 
agricultural  State  where  land  was  cheap  and  limitless  in  quan- 
tity. It  was  replied  that  this  difference  in  conditions  was  "for 
those  who  make,  not  for  those  who  interpret,  the  laws."  And 
considering  the  expressions  in  the  other  cases  which,  it  was 
said,  went  rather  to  the  expediency  of  the  lawys  than  to  their 
validity,  yet,  it  was  further  said,  the  expressions  had  their 
value  because  the  "obvious  aim  of  the  reasoning  that  pre- 
vailed was  to  show  that  the  subject-matter  of  these  enactments 
fell  within  the  legitimate  sphere  of  legislative  power,  and  that, 
so  far  as  the  laws  and  Constitution  of  the  United  States  was 
concerned,  the  legislation  in  question  deprived  no  person  of 
his  property  without  due  process  of  law." 

The  cases  need  no  explanatory  or  fortifying  comment. 
They  demonstrate  that  a  business,  by  circumstances  and  its 
nature,  may  rise  from  private  to  be  of  public  concern  and  be 
subject,  in  consequence,  to  governmental  regulation.  And  they 
driiionstratr,  to  apply  the  laiiiruagr  of  Judire  Andrews  in  the 
Budd  case  (117  N.  Y.  1,  27),  that  the  attempts  made  to  place 
the  right  of  public  regulation  in  the  cases  in  which  it  has  been 
exerted,  and  of  which  we  have  given  examples,  upon  the  ground 
of  special  privilege  conferred  by  the  public  on  those  affected, 
cannot  be  supported.  "The  underlying  principle  is  that  busi- 
ness of  certain  kinds  holds  such  a  peculiar  relation  to  the  public 
interest  that  there  is  superinduced  upon  it  the  right  of  public 
rocrulation."  Is  thf  business  of  insurance  within  the  principle? 
It  would  be  a  bold  thing  to  say  that  the  principle  is  fixed,  in- 
elastic, in  the  precedents  of  the  past  and  cannot  be  applied 
though  modern  economic  conditions  may  make  necessary  or 
beneficial  its  application.  In  other  words,  to  .say  that  govern- 
ment possessed  at  one  time  a  greater  power  to  recognise  the 
public  interest  in  a  business  and  its  regulation  to  promote  the 


general  welfare  than  the  government  possesses  to-day.  We  pro- 
ceed then  to  consider  whether  the  business  of  insurance  is 
within  the  principle. 

A  contract  for  fire  insurance  is  one  for  indemnity  against 
loss  and  is  personal.  The  admission,  however,  does  not  take 
us  far  in  the  solution  of  the  question  presented.  Its  personal 
character  certainly  does  not  itself  preclude  regulation,  for 
there  are  many  examples  of  governmental  regulation  of  per- 
sonal contracts,  and  in  the  statutes  of  every  State  in  the  Union 
superintendence  and  control  over  the  business  of  insurance 
are  exercised,  varying  in  details  and  extent.  We  need  not 
particularize  in  detail.  We  need  only  say  that  there  was  quite 
early  (in  Massachusetts  1837,  New  York  1853)  state  provision 
for  what  is  kno-\vn  as  the  unearned  premium  fund  or  reserve; 
then  came  the  limitation  of  dividends,  the  publishing  of  ac- 
counts, valued  policies,  standards  of  policies,  prescribing  in- 
vestment, requiring  deposits  in  money  or  bonds,  confining  the 
business  to  corporations,  preventing  discrimination  in  rates, 
limitation  of  risks  and  other  regulatons  equally  restrictive. 
In  other  words,  the  State  has  stepped  iu  and  imposed  condi- 
tions upon  the  companies,  restraining  the  absolute  liberty 
which  businesses  strictly  private  are  permitted  to  exercise. 

Those  regulations  exhibit  it  to  be  the  conception  of  the  law- 
making bodies  of  the  country  without  exception  that  the  busi- 
ness of  insurance  so  far  affects  the  public  welfare  as  to  invoke 
and  require  governmental  regulation.  A  conception  so  general 
cannot  be  without  cause.  The  universal  sense  of  a  people  can- 
not be  accidental;  its  persistence  saves  it  from  the  charge  of 
unconsidered  impulse,  and  its  estimate  of  insurance  certainly 
has  substantial  basis.  Accidental  fires  are  inevitable  and  the 
extent  of  loss  very  great.  The  effect  of  insurance — indeed, 
it  has  been  said  to  be  its  fundamental  object — is  to  distribute 
the  loss  over  as  wide  an  area  as  possible.  In  other  words,  the 
loss  is  spread  over  the  country,  the  disaster  to  an  individual 
is  shared  by  many,  the  disaster  to  a  community  shared  by 
other  communities;  great  catastrophes  are  thereby  lessened, 
and,  it  may  be,  repaired.  In  assimilation  of  insurance  to  a 
tax,  the  companies  have  been  said  to  be  the  mere  machinery 
by  which  the  inevitable  losses  by  fire  are  distributed  so  as  to 
fall  as  lightly  as  possible  on  the  public  at  large,  the  body  of 
the  insured,  not  the  companies,  paying  the  tax.  Their  effi- 
ciency, therefore,  and  solvency  are  of  great  concern.  The  other 
objects,  direct  and  indirect,  of  insurance  we  need  not  mention. 


89 

Iiukt.ll.  il  may  be  enough  to  say,  ^vithollt  stating  other  effects 
of  insurance,  that  a  hirge  part  of  tlie  country's  wealth,  sub- 
ject to  uncertainty  of  loss  through  fire,  is  protected  by  insur- 
ance. This  chinonstrati'S  the  interest  of  the  public  in  it  and  we 
need  nut  dispute  with  the  economists  that  this  is  the  result  of 
the  "substitution  of  certain  for  uncertain  loss"  or  the  diffusion 
of  positive  loss  over  a  large  group  of  persons,  as  we  have  al- 
ready said  to  be  certainly  one  of  its  effects.  "We  can  see, 
therefore,  how  it  has  come  to  be  considered  as  a  matter  of  pub- 
lic concern  to  regulate  it,  and  trovcniiiiciilal  iiisuraiicf  lias  its 
advocates  and  even  examples.  Contracts  of  insurance,  therefore, 
have  greater  public  consequence  than  contracts  between  indi- 
viduals to  do  or  not  to  do  a  particular  thing  whose  effect  stops 
with  the  individuals.  We  may  say  in  passing  that,  when  the 
effect  goes  beyond  that,  there  are  many  examples  of  regula- 
tion. Holden  v.  Hardy,  1G!1  U.  S.  8GG ;  ririflfitii  v.  Connecticut, 
218  U.  S.  563 ;  :Muller  v.  Oregon,  208  U.  S.  412 ;  Mutual  Loan 
Co.  V.  IMartel,  222  IT.  S.  225;  Schmidinger  v.  Chicago,  226  U.  S. 
578;  Chicago,  Burlington  &  Quincy  R.  R.  Co.  v.  Maguire,  219 
U.  S.  549 ;  Noble  State  Bank  v.  Haskell  et  al.,  219  U.  S.  104. 

Complainant  feels  the  necessity  of  accounting  for  the 
regulatory  state  legislation  and  refers  it  to  the  exertion  of 
the  police  power,  but.  while  expressing  the  power  in  the  broad 
language  of  the  eases,  seeks  to  restrict  its  application.  Coun- 
sel states  that  this  power  may  be  exerted  to  "pass  laws  whose 
purpose  is  the  health,  safety,  morals  and  the  general  welfare 
of  the  people."  The  admission  is  very  comprehensive.  What 
makes  for  the  general  welfare  is  necessarily  in  the  first  in- 
stance a  matter  of  legislative  judgment  and  a  judicial  review 
of  such  judgment  is  limited.  "The  scope  of  judicial  inquiry 
in  deciding  the  question  of  power  is  not  to  be  confused  with 
the  scope  of  legislative  consideration  in  dealing  with  the  mat- 
ter of  policy.  "Whether  the  enactment  is  wise  or  unwise, 
whether  it  is  based  on  sound  economic  theory,  whether  it  is  the 
best  means  to  achieve  the  desired  result,  whether,  in  short,  the 
legislative  discretion  within  its  prescribed  limits  should  be  ex- 
ercised in  a  particular  manner,  are  matters  for  the  judgment  of 
the  leffislature.  and  the  earnest  conflict  of  serious  opinion  does 
not  suffice  to  bring  them  within  the  range  of  judicial  cogniz- 
ance." Chicago.  Burlington  &  Quiney  Railroad  Co.  v.  Ma- 
guire. 219  U.  S.  540,  569. 

The  restrictions  upon  the  legislative  power  which  com- 
plainant  urges   we   have   discussed,   or   rather   the    considera- 


90 

tions  which  take,  it  is  contended,  the  business  of  insurance  out- 
side of  the  sphere  of  the  power.  To  the  contention  that  the 
business  is  private  we  have  opposed  the  conception  of  the  public 
interest.  We  have  shown  that  the  business  of  insurance  has 
very  definite  characteristics,  with  a  reach  of  influence  and 
consequence  beyond  and  different  from  that  of  the  ordinary 
businesses  of  the  commercial  world,  to  pursue  which  a  greater 
liberty  niay  be  asserted.  The  transactions  of  the  latter  are 
independent  and  individual,  terminating  in  their  effect  with  the 
instances.  The  contracts  of  insurance  may  be  said  to  be  inter- 
dependent. They  cannot  be  regarded  singly,  or  isolatedly. 
and  the  effect  of  their  relation  is  to  create  a  fund  of  assurance 
and  credit,  the  companies  becoming  the  depositories  of  the 
money  of  the  insured,  possessing  great  power  thereby  and 
charged  with  great  responsibility.  How  necessary  their 
solvency  is,  is  manifest.  On  the  other  hand,  to  the  insured,  in- 
surance is  an  asset,  a  basis  of  credit.  It  is  practically  a  neces- 
sity to  business  activity  and  enterprise.  It  is,  therefore,  es- 
sentially different  from  ordinary  commercial  transactions,  and, 
as  we  have  seen,  according  to  the  sense  of  the  world  from  the 
earliest  times — certainly  the  sense  of  the  modern  world — is  of 
the  greatest  public  concern.  It  is,  therefore,  within  the  prin- 
ciple we  have  announced. 

But  it  is  said  that  the  reasoning  of  the  opinion  has  the 
broad  reach  of  subjecting  to  regulation  every  act  of  human 
endeavor  and  the  price  of  every  article  of  human  use.  We 
might,  without  much  concern,  leave  our  discussion  to  take  care 
of  itself  against  such  misunderstanding  or  deductions.  The 
principle  we  apply  is  definite  and  old  and  has,  as  we  have 
pointed  out,  illustrating  examples.  And  both  by  the  expres- 
sion of  the  principle  and  the  citation  of  the  examples  we  have 
tried  to  confine  our  decision  to  the  regulation  of  the  business 
of  insurance,  it  having  become  "clothed  with  a  public  in- 
terest," and,  therefore,  subject  "to  be  controlled  by  the  public 
for  the  common  good." 

If  there  may  be  controversy  as  to  the  business  having  such 
character,  there  can  be  no  controversy  as  to  what  follows  from 
such  character  if  it  be  established.  It  is  idle,  therefore,  to  de- 
bate whether  the  liberty  of  contract  guaranteed  by  the  Consti- 
tution of  the  United  States  is  more  intimately  involved  in  price 
regulation  than  in  the  other  forms  of  regulation  as  to  the  valid- 
ity of  which  there  is  no  dispute.  The  order  of  their  enactment 
certainly  cannot  be  considered  an  element  in  their  legality.     It 


91 

would  be  very  rudimentary  to  say  that  measures  of  goverumeut 
are  determined  by  circumstances,  by  the  presence  or  imminence 
of  conditions,  and  of  the  legislative  judgment  of  the  means  or 
the  policy  of  removing  or  preventing  them.  The  power  to  regu- 
late interstate  commerce  existed  for  a  century  before  the  Inter- 
state Commerce  Act  was  passed,  and  the  Commission  consti- 
tuted by  it  was  not  given  authority  to  fix  rates  until  some  years 
afterwards.  Of  the  agencies  which  those  measures  were  en- 
acted to  regulate  at  the  time  of  the  creation  of  the  power,  there 
was  no  prophecy  or  conception.  Nor  was  regulation  immediate 
upon  their  existence.  It  was  exerted  only  when  the  size,  num- 
ber and  influence  of  those  agencies  had  so  increased  and  de- 
veloped as  to  seem  to  make  it  imperative.  Other  illustrations 
readily  occur  which  repel  the  intimation  tiiat  the  inactivity  of 
a  power,  however  prolonged,  militates  against  its  legality  when 
it  is  exercised.  United  States  v.  Delaware  &  Hudson  Co.,  213 
U.  S.  366.  It  is  oftener  the  existence  of  necessity  rather  than 
the  prescience  of  it  which  dictates  legislation.  And  so  with  the 
regulations  of  the  business  of  insurance.  They  have  proceeded 
step  by  step,  differing  in  different  jurisdictions.  If  we  are 
brought  to  a  comparison  of  them  in  relation  to  the  power  of 
government,  how  can  it  be  said  that  fixing  the  price  of  insur^ 
ance  is  beyond  that  [)ower  and  the  other  instances  of  regulation 
are  not?  How  can  it  be  said  that  the  right  to  engage  in  the 
business  is  a  natural  one  when  it  can  be  denied  to  individuals 
and  permitted  to  corporations?  How  can  it  be  said  to  have  the 
privilege  of  a  private  business  when  its  dividends  are  restricted, 
its  investments  controlled,  the  form  and  extent  of  its  contracts 
prescribed,  discriminations  in  its  rates  denied  and  a  limitation 
on  its  risks  imposed?  Are  not  such  regulations  restraints  upon 
the  exercise  of  the  personal  right — asserted  to  be  fundamental 
— of  dealing  with  property  freely  or  engaging  in  what  con- 
tracts one  may  choose  and  with  whom  and  upon  what  terms  one 
may  choose? 

We  may  venture  to  observe  that  the  price  of  insurance  is 
not  fixed  over  the  counters  of  the  companies  by  what  Adam 
Smith  calls  the  higgling  of  the  market,  but  formed  in  the  coun- 
cils of  the  underwriters,  promulgated  in  schedules  of  practical- 
ly controlling  constancy  which  the  applicant  for  insurance  is 
powerless  to  oppose  and  which,  therefore,  has  led  to  the  asser- 
tion that  the  business  of  insurance  is  of  monopolistic  character 
and  that  "it  is  illusory  to  speak  of  a  liberty  of  contract."  It  is 
in  the  alternative  presented,  of  accepting  the  rates  of  the  com- 


92 

panies  or  refraining-  from  insurance,  business  necessity  impell- 
ing if  not  compelling  it,  that  we  may  discover  the  inducement 
of  the  Kansas  statute,  and  the  problem  presented  is  whether  the 
legislature  could  regard  it  of  as  much  moment  to  the  public  that 
they  who  seek  insurance  should  no  more  be  constrained  by  arbi- 
trary terms  than  they  who  seek  transportation  by  railroads, 
steam  or  street,  or  by  coaches  whose  itinerary  may  be  only  a 
few  city  blocks,  or  who  seek  the  use  of  grain  elevators,  or  be  se- 
cured in  a  night's  accommodation  at  a  wayside  inn,  or  in  the 
weight  of  a  five-cent  loaf  of  bread.  We  do  not  say  this  to  be- 
little such  rights  or  to  exaggerate  the  effect  of  insurance,  but  to 
exhibit  the  principle  which  exists  in  all  and  brings  all  under  the 
same  governmental  power. 

We  have  summarized  the  provisions  of  the  Kansas  statute, 
and  it  will  be  observed  from  them  that  they  attempt  to  syste- 
matize the  control  of  insurance.  The  statute  seeks  to  secure 
rates  which  shall  be  reasonable  both  to  the  insurer  and  the  in- 
sured, and  as  a  means  to  this  end  it  prescribes  equality  of 
charges,  forbids  initial  discrimination  or  subsequently  by  the 
refund  of  a  portion  of  the  rates,  or  the  extension  to  the  insured 
of  any  privilege;  to  this  end  it  requires  publicity  in  the  basic 
schedules  and  of  all  of  the  conditions  which  affect  the  rates  or 
the  value  of  the  insurance  to  the  insured,  and  also  adherence 
to  the  rates  as  published.  Whether  the  requirements  are  neces- 
sary to  the  purpose,  or — ^to  confine  ourselves  to  that  which  is 
under  review — whether  rate  regulation  is  necessary  to  the  pur- 
pose, is  a  matter  for  legislative  judgment,  not  judicial.  Our 
function  is  only  to  determine  the  existence  of  power. 

The  bill  attacks  the  statute  of  Kansas  as  discriminating 
against  complainant  because  the  statute  excludes  from  its  pro- 
visions farmers'  mutual  insurance  companies,  organized  and 
doing  business  under  the  laws  of  the  State  and  insuring  only 
farm  property.  The  charge  is  not  discussed  in  the  elaborate 
brief  of  counsel,  nor  does  it  seem  to  have  been  pressed  in  the 
lower  court.  It  is,  however,  covered  by  the  assignments  of 
error. 

The  provision  of  the  statute  is,  ''That  nothing  in  this  act 
shall  affect  farmers'  mutual  insurance  companies,  organized  and 
doing  business  under  the  laws  of  this  State  and  insuring  only 
farm  property."  The  distinction  is,  therefore,  between  co- 
operative insurance  companies  insuring  a  special  kind  of  prop- 
erty and  all  other  insurance  companies.  It  is  only  with  that 
distinction  that  we  are  now  concerned.     There  are  special  pro- 


93 

visions  in  the  statutes  of  Kansas  for  the  organization  of  co- 
operative companies  and  if  the  statute  under  review  discrimi- 
nates between  them  the  German  Alliance  Company  cannot  avail 
itself  of  the  discrimination.  A  citation  of  cases  is  not  neces- 
sary, nor  for  the  jjeneral  principle  that  a  discrimination  is  valid 
if  not  arbitrary,  and  arbitrary  in  the  legislative  sense,  that  is, 
outside  of  that  wide  discretion  which  a  legislature  may  exer- 
cise. A  legislative  classification  may  rest  on  narrow  distinc- 
tions. Legislation  is  addressed  to  evils  as  they  may  appear, 
and  even  degrees  of  evil  may  determine  its  exercise.  Ozan 
Lumber  Co.  v.  Union  County  National  Bank,  207  U.  S.  251. 
There  are  certainly  differences  between  stock  companies,  such 
as  complainant  is,  and  the  mutual  companies  described  in  the 
bill,  and  a  recognition  of  the  differences  we  cannot  say  is  out- 
side of  the  constitutional  power  of  the  legislature.  Orient  In- 
surance Co,  V.  Daggs,  172  U.  S.  557. 
Decree  affirmed. 


94 


INDEX. 


PAGE 

Agents'  Qualification  Requirements   62 

Appendix   "A" — Abstract   of  Report   of   Herman   L.   Ekern,   Insurance 

Commissioner  of  Wisconsin    75 

Appendix  "B" — Decision   of  U.   S.   Supreme   Court,   Upholding   State's 

Right   to    Control    Rates 7S 

Banking  Profits   of   Companies    56 

Benefits  of   Insurance    71 

Calculation  of  Profit  Percentage,  Etc 57 

Cancellation  of  Policies,  Etc 61 

Charge   of   "Politics"    35 

Classification    24 

Coercion  Threatened  by  the  "Combine" 28 

Co-Insurance    '. 63 

Companies  and  Experience    24 

Companies'  Tactics  Toward  Insurance  Department 29 

Comparison  of  Rates  in  Chicago  and  other  Cities 14 

Annual  Dwelling  Rates    14 

Comparison  with  New  York   14 

Conflagration   Hazard    43 

Constitutionality    45 

Continuation   of  Efforts  for  Reform   Necessary    73 

Dean    Schedule    '. . .  .   15 

Basis  Tables   15 

Rates   for  Building   and   Contents    16 

Reductions  NecessaiT  to  Eciualize  Chicago 17 

Climax  of  Increases   17 

Detailed   Statement  of  Value    60 

Distribution   of   Risks    43 

Education  in  Fire  Prevention   66 

European    Premium    Rates     26 

Excessive  Profits  of  Insurance   Companies    53 

Excessive    Salaries     ' 59 

Fallacious  Claim  That  T'ire  Insurance  Monopoly  is  Necessary 67 

Fire  Insurance  a  Tax    12 

Fire  Insurance  Compulsory   3 

Fire  Investigations  Continued    1 

Fire  Prevention  Not  in  Good  Faith  Favored  by  Companies 27 

Fire  Prevention 65 

Fires  Not  Dreaded  by   Companies,   Proof 40 

Foreign  Re-Insurance  and  Net  Lines    62 

History  of  Fire  Insurance    ■.  .  . .      3 

Ancient    Times     4 

Germany    5 

Austria-Hungary   6 

Switzerland    6 

Denmark 6 


95 

I'AtJB 

Sweden 7 

Norway   7 

Russia    

New  Zealand   

State  Insurance  Well  Tried    y 

England    9 

United  States 10 

Combination  Begins    10 

Illinois  11 

Super\'ision    Begins    11 

Illinois  Fire  Loss  Experience   19 

Illinois  Press  Association   73 

Insurance    Hazard     60 

Insurance   Journals'    Policy    32 

Magnitude  and   necessity   of   Fire   Insuranoc 2 

Mercenary  Perversion  of  Beneficent    Idea                    48 

Monopoly  and  EvUs 70 

Newspapers  and  Trade  Journals  34 

New  York  and  Arson   38 

Other  Recommendations   60 

Premium   Rates    13 

Profits  from  Illegitimate  Stock  Transactions    5S 

Proof  that  Reduction  in  Rates  is  Possible 26 

Rate-Making  22 

Rates  Controlled  or  Made  by  State   50 

Standardization  44 

Standard    Policy    61 

State   Insurance    37 

Summary  and  Conclusions    72 

Surplus  and  Profit  Percentage  Calculation                      59 

Texas    Experience     39 

Underwriter  Annex   Litigation    30 

•Underwriters    Laboratories"    42 

"Valued    Policies"    65 


I 


That  the  rep 
Rates  in  lUiiiois 
manded  by  the  f 
tield  newspaper 
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The  Canton  E 

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M.  Polts,  state  insi 
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relief  for  the  peoj 

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Every  constit 
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surance  Superi 
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trol  or  adminls 
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journal  publisli 
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Register,  Springfield,  111.  (Democratic.) 

;e  "combine"  is  urging  as  its  defense  to  the 
remedial  legislation  recommended  by  In- 
ntendent  Potts,  that  all  "state  govern- 
cient,"  and  inherently  incompetent  to  cen- 
ter systems  of  insurance.  This  sentiment 
3sed  in  an  article  appearing  in  the  Decem- 
3f  the  Western  Underwriter,  an  insurance 
ed  in  Chicago,  and  the  recognized  official 
e  insurance  interests  controlling  the  busi- 
In  discussing  the  reform  measures  recom- 
?s  the  following  statement: 

e  Governments  Are  Inefficient. 

hat  most  of  the  state  governments  are 
md  extravagantly  managed  would  not 
i  recommendation  for  entrusting  them 
J  and  distributing  vast  insurance  funds, 
srnments  of  the  states  are  administered 
re  satisfatcory  way,  it  is  not  likely  that 
11  listen  to  state  insurance  or  anything 

;o  editorially  states  that  "We  do  not  be- 
ing people  would  be  willing  to  entrust  to 
state  governments  the  administration  of 
nee   fund." 

is  in  keeping  with  the  defenses  that  have 
by  all  trusts,  and  these  charges  are  not 
un-American,  and  a  vicious  attack  upon 
orm  of  government. 

n  of  "trusts"  have  always  been  a  bar- 
srnmental  progress;  combinations  in  re- 
constitute the  agencies  cf  oppression  of 
it  is  the  corrupt  use  of  corporate  money 
any  inefficiency  that  may  exist  in  any 
it.  Eliminate  the  pernicious  influence  of 
inefficiency    in   a   state   government   will 

f  Illinois  are  big  enough,  and  our  state 
imply  competent  to  control  or  adminis- 
f  insurance  that  can  be  furnished  by  any 
)ns  on  earth..  From  the  class  of  people 
ar  government  come  our  public  officials, 
fficiency  should  be  expected,  whether  the 
the  people  or  is  employed  in  piling  up 
rations. 

endations  tendered  by  Superintendent 
;ed  by  all   to  be  sound  and   of  scientific 


Stockton,  Calif. 
PM.  m.  21.  19C8 


vn»«;:7oi 


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